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Were Hedge Funds Right About Flocking Into FS KKR Capital Corp. (FSK) ?

Hedge funds are not perfect. They have their bad picks just like everyone else. Facebook, a stock hedge funds have loved, lost nearly 40% of its value at one point in 2018. Although hedge funds are not perfect, their consensus picks do deliver solid returns, however. Our data show the top 15 S&P 500 stocks among hedge funds at the end of December 2018 yielded an average return of 19.7% year-to-date, vs. a gain of 13.1% for the S&P 500 Index. Because hedge funds have a lot of resources and their consensus picks do well, we pay attention to what they think. In this article, we analyze what the elite funds think of FS KKR Capital Corp. (NYSE:FSK).

Is FS KKR Capital Corp. (NYSE:FSK) a buy here? Investors who are in the know are betting on the stock. The number of bullish hedge fund positions increased by 11 recently. Our calculations also showed that FSK isn’t among the 30 most popular stocks among hedge funds.

In the eyes of most investors, hedge funds are seen as unimportant, old investment vehicles of the past. While there are greater than 8000 funds trading today, Our experts look at the bigwigs of this group, approximately 750 funds. It is estimated that this group of investors preside over bulk of all hedge funds’ total capital, and by following their unrivaled investments, Insider Monkey has spotted various investment strategies that have historically outperformed Mr. Market. Insider Monkey’s flagship hedge fund strategy beat the S&P 500 index by nearly 5 percentage points per year since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 27.5% since February 2017 (through March 12th) even though the market was up nearly 25% during the same period. We just shared a list of 6 short targets in our latest quarterly update and they are already down an average of 6% in less than a month.

CITADEL INVESTMENT GROUP

We’re going to check out the recent hedge fund action surrounding FS KKR Capital Corp. (NYSE:FSK).

What have hedge funds been doing with FS KKR Capital Corp. (NYSE:FSK)?

At the end of the fourth quarter, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 122% from the second quarter of 2018. On the other hand, there were a total of 8 hedge funds with a bullish position in FSK a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

FSK_apr2019

The largest stake in FS KKR Capital Corp. (NYSE:FSK) was held by Beach Point Capital Management, which reported holding $61.3 million worth of stock at the end of September. It was followed by HBK Investments with a $40.4 million position. Other investors bullish on the company included Citadel Investment Group, Arrowstreet Capital, and Almitas Capital.

Now, key hedge funds were breaking ground themselves. Beach Point Capital Management, managed by Carl Goldsmith and Scott Klein, established the biggest position in FS KKR Capital Corp. (NYSE:FSK). Beach Point Capital Management had $61.3 million invested in the company at the end of the quarter. David Costen Haley’s HBK Investments also made a $40.4 million investment in the stock during the quarter. The other funds with brand new FSK positions are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Ron Mass’s Almitas Capital, and Andrew Weiss’s Weiss Asset Management.

Let’s check out hedge fund activity in other stocks similar to FS KKR Capital Corp. (NYSE:FSK). These stocks are Barnes Group Inc. (NYSE:B), Orbotech Ltd. (NASDAQ:ORBK), Thor Industries, Inc. (NYSE:THO), and UniFirst Corp (NYSE:UNF). All of these stocks’ market caps are similar to FSK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
B 14 32255 1
ORBK 32 700155 5
THO 22 140201 -6
UNF 14 152652 -2
Average 20.5 256316 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $256 million. That figure was $173 million in FSK’s case. Orbotech Ltd. (NASDAQ:ORBK) is the most popular stock in this table. On the other hand Barnes Group Inc. (NYSE:B) is the least popular one with only 14 bullish hedge fund positions. FS KKR Capital Corp. (NYSE:FSK) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on FSK as the stock returned 24.7% and outperformed the market by an even larger margin.

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

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