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Were Hedge Funds Right About KKR & Co Inc. (KKR)?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (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. With this in mind let’s see whether KKR & Co Inc. (NYSE:KKR) makes for a good investment at the moment. We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.

Is KKR & Co Inc. (NYSE:KKR) a buy here? The best stock pickers are getting more bullish. The number of long hedge fund bets inched up by 13 in recent months. Our calculations also showed that KKR 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). KKR was in 56 hedge funds’ portfolios at the end of December. There were 43 hedge funds in our database with KKR positions at the end of the previous quarter.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Richard Pzena - Pzena Investment Management

Richard S. Pzena of Pzena Investment Management

We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations. Federal Reserve and Central Banks all around world are printing money like there is no tomorrow, so we check out this this precious metals expert’s stock pick. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). 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. With all of this in mind let’s take a look at the new hedge fund action surrounding KKR & Co Inc. (NYSE:KKR).

What does smart money think about KKR & Co Inc. (NYSE:KKR)?

At Q4’s end, a total of 56 of the hedge funds tracked by Insider Monkey were long this stock, a change of 30% from one quarter earlier. By comparison, 29 hedge funds held shares or bullish call options in KKR a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, ValueAct Capital held the most valuable stake in KKR & Co Inc. (NYSE:KKR), which was worth $1335.5 million at the end of the third quarter. On the second spot was Akre Capital Management which amassed $372.1 million worth of shares. Diamond Hill Capital, Pzena Investment Management, and Ariel Investments were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Greenhaven Road Investment Management allocated the biggest weight to KKR & Co Inc. (NYSE:KKR), around 22.19% of its 13F portfolio. Blacksheep Fund Management is also relatively very bullish on the stock, designating 21.14 percent of its 13F equity portfolio to KKR.

Consequently, key hedge funds were leading the bulls’ herd. Point72 Asset Management, managed by Steve Cohen, assembled the most valuable position in KKR & Co Inc. (NYSE:KKR). Point72 Asset Management had $53.5 million invested in the company at the end of the quarter. Alexis Fortune’s Blacksheep Fund Management also made a $28.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Scott Stewart Miller’s Greenhaven Road Investment Management, Travis Cocke’s Voss Capital, and Anand Parekh’s Alyeska Investment Group.

Let’s also examine hedge fund activity in other stocks similar to KKR & Co Inc. (NYSE:KKR). We will take a look at Xilinx, Inc. (NASDAQ:XLNX), Verisk Analytics, Inc. (NASDAQ:VRSK), Aptiv PLC (NYSE:APTV), and Telefonica Brasil SA (NYSE:VIV). All of these stocks’ market caps match KKR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
XLNX 42 1025915 -1
VRSK 33 848898 -1
APTV 46 1053189 17
VIV 12 97729 -1
Average 33.25 756433 3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.25 hedge funds with bullish positions and the average amount invested in these stocks was $756 million. That figure was $3624 million in KKR’s case. Aptiv PLC (NYSE:APTV) is the most popular stock in this table. On the other hand Telefonica Brasil SA (NYSE:VIV) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks KKR & Co Inc. (NYSE:KKR) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 1.0% in 2020 through April 20th and still beat the market by 11 percentage points. Unfortunately KKR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on KKR were disappointed as the stock returned -21% during the three months of 2020 (through April 20th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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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