What Hedge Funds Think about South Korean ADRs

When most equity investors think of diversification, they think about investing their money in different stocks and sectors. While that approach does work to reduce the volatility in their portfolio and safeguards it from cyclical downturns faced by industries, it is not a foolproof method. That’s because regardless of the companies and sectors they are putting their money in, if all of them belong to the same geographical location, they are bound to get impacted by the economic situation of that region. To really diversify one’s portfolio, investors need to allocate some money to stocks from other geographies other than the one they live in. To make the process  of stock selection easier for such investors, we at Insider Monkey regularly come up with a list of stocks from different countries that are listed on the US exchanges based on their popularity among hedge funds. In this article, let’s take a closer look at five US-traded stocks of South Korean-based companies that hedge funds and other smart money investors are fond of the most.

Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).

#5 KB Financial Group, Inc. (ADR) (NYSE:KB)

– Investors with long positions (as of March 31): 8

– Aggregate value of investors’ holdings (as of March 31): $24.01 million

Let’s start with KB Financial Group, Inc. (ADR) (NYSE:KB), whose ownership among funds covered by us remained unchanged, but the aggregate value of holdings came down by 10% during the first quarter. Notable investors that initiated a stake in the bank holding company during that period included Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, which purchased 73,717 shares. KB Financial Group, Inc. (ADR) (NYSE:KB)’s stock has appreciated by 14% so far this year, but in the last five years it has lost almost 35% of its value. It currently trades at a trailing price-to-earnings multiple of 8.34, below the industry average of 9.8.

#4 LG Display Co Ltd. (ADR) (NYSE:LPL)

– Investors with long positions (as of March 31): 10

– Aggregate value of investors’ holdings (as of March 31): $23.72 million

The stock of display panel manufacturer LG Display Co Ltd. (ADR) (NYSE:LPL) has surged by more than 30% since the beginning of the year. During the first quarter, the number of funds covered by us long LG Display Co Ltd. (ADR) (NYSE:LPL) inched down by one and the aggregate value of their holdings declined by 27%. Among them, funds that brought down their holding in the company during that period included John Overdeck and David Siegel‘s Two Sigma Advisors, which reduced its stake by 30% to 231,600 shares. For the second quarter, LG Display posted revenue of KRW 5,855 billion ($5.26 billion), down by 13% on the year, and turned to a net loss of KRW 84 billion ($7.53 million) from a profit of KRW 363 billion ($326.40 million) registered in the second quarter of 2015.