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Were Hedge Funds Right About Dumping KT Corporation (KT)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether KT Corporation (NYSE:KT) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is KT Corporation (NYSE:KT) a buy right now? The smart money is turning less bullish. The number of long hedge fund bets went down by 5 recently. Our calculations also showed that KT isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Lee Ainslie MAVERICK CAPITAL

Lee Ainslie of Maverick Capital

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a glance at the new hedge fund action regarding KT Corporation (NYSE:KT).

How are hedge funds trading KT Corporation (NYSE:KT)?

At Q4’s end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -23% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in KT over the last 18 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

The largest stake in KT Corporation (NYSE:KT) was held by Kopernik Global Investors, which reported holding $88.2 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $50.8 million position. Other investors bullish on the company included LMR Partners, D E Shaw, and GLG Partners. In terms of the portfolio weights assigned to each position Kopernik Global Investors allocated the biggest weight to KT Corporation (NYSE:KT), around 15.83% of its 13F portfolio. Sensato Capital Management is also relatively very bullish on the stock, setting aside 6.65 percent of its 13F equity portfolio to KT.

Since KT Corporation (NYSE:KT) has experienced a decline in interest from the entirety of the hedge funds we track, we can see that there is a sect of hedgies who were dropping their entire stakes by the end of the third quarter. At the top of the heap, Simon Sadler’s Segantii Capital sold off the largest investment of all the hedgies watched by Insider Monkey, worth close to $35.6 million in stock. Israel Englander’s fund, Millennium Management, also dumped its stock, about $3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 5 funds by the end of the third quarter.

Let’s check out hedge fund activity in other stocks similar to KT Corporation (NYSE:KT). We will take a look at Williams-Sonoma, Inc. (NYSE:WSM), Popular Inc (NASDAQ:BPOP), Avalara, Inc. (NYSE:AVLR), and 51job, Inc. (NASDAQ:JOBS). All of these stocks’ market caps are closest to KT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WSM 29 336409 3
BPOP 33 817539 2
AVLR 47 1055451 -1
JOBS 8 19080 0
Average 29.25 557120 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $557 million. That figure was $259 million in KT’s case. Avalara, Inc. (NYSE:AVLR) is the most popular stock in this table. On the other hand 51job, Inc. (NASDAQ:JOBS) is the least popular one with only 8 bullish hedge fund positions. KT Corporation (NYSE:KT) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately KT wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); KT investors were disappointed as the stock returned -33.7% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Disclosure: None. This article was originally published at Insider Monkey.

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