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Were Hedge Funds Right About Flocking Into KLA-Tencor Corporation (KLAC) ?

Hedge funds run by legendary names like George Soros and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant outperformance. That’s why we pay special attention to hedge fund activity in these stocks.

Is KLA-Tencor Corporation (NASDAQ:KLAC) a sound investment right now? Money managers are becoming more confident. The number of long hedge fund bets moved up by 8 lately. Our calculations also showed that klac isn’t among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Noam Gottesman GLG Partners

Noam Gottesman, GLG Partners

Let’s view the recent hedge fund action regarding KLA-Tencor Corporation (NASDAQ:KLAC).

How are hedge funds trading KLA-Tencor Corporation (NASDAQ:KLAC)?

At Q1’s end, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 24% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards KLAC over the last 15 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with KLAC Positions

More specifically, Renaissance Technologies was the largest shareholder of KLA-Tencor Corporation (NASDAQ:KLAC), with a stake worth $96.8 million reported as of the end of March. Trailing Renaissance Technologies was Alkeon Capital Management, which amassed a stake valued at $84.9 million. D E Shaw, GLG Partners, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.

As industrywide interest jumped, specific money managers were leading the bulls’ herd. Theleme Partners, managed by Patrick Degorce, established the largest position in KLA-Tencor Corporation (NASDAQ:KLAC). Theleme Partners had $34.7 million invested in the company at the end of the quarter. Charles Clough’s Clough Capital Partners also made a $16.5 million investment in the stock during the quarter. The following funds were also among the new KLAC investors: Michel Massoud’s Melqart Asset Management, Tor Minesuk’s Mondrian Capital, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as KLA-Tencor Corporation (NASDAQ:KLAC) but similarly valued. We will take a look at Fifth Third Bancorp (NASDAQ:FITB), Ball Corporation (NYSE:BLL), Sasol Limited (NYSE:SSL), and IDEXX Laboratories, Inc. (NASDAQ:IDXX). This group of stocks’ market valuations resemble KLAC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FITB 38 1120818 7
BLL 27 324081 -6
SSL 5 18378 -2
IDXX 29 695512 -4
Average 24.75 539697 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $540 million. That figure was $643 million in KLAC’s case. Fifth Third Bancorp (NASDAQ:FITB) is the most popular stock in this table. On the other hand Sasol Limited (NYSE:SSL) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks KLA-Tencor Corporation (NASDAQ:KLAC) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately KLAC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on KLAC were disappointed as the stock returned -11.9% during the same 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 13 of these stocks already outperformed the market in Q2.

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

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