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Did Hedge Funds Drop The Ball On Kronos Worldwide, Inc. (KRO)?

Reymerlyn Martin

Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 due to various reasons. Nevertheless, the data show elite investors' consensus picks have done well on average over the long-term. The top 15 S&P 500 stocks among hedge funds at the end of September 2018 returned an average of 1% through March 15th whereas the S&P 500 Index ETF lost 2.2% during the same period. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Kronos Worldwide, Inc. (NYSE:KRO) from the perspective of those elite funds.

Is Kronos Worldwide, Inc. (NYSE:KRO) a bargain? Prominent investors are becoming less hopeful. The number of bullish hedge fund positions were cut by 3 recently. Our calculations also showed that KRO 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 32 percentage points since May 2014 through March 12, 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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

GOTHAM ASSET MANAGEMENT

We're going to review the fresh hedge fund action encompassing Kronos Worldwide, Inc. (NYSE:KRO).

What have hedge funds been doing with Kronos Worldwide, Inc. (NYSE:KRO)?

At the end of the fourth quarter, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards KRO over the last 14 quarters. With hedge funds' capital changing hands, there exists a few notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

KRO_apr2019

The largest stake in Kronos Worldwide, Inc. (NYSE:KRO) was held by Renaissance Technologies, which reported holding $19.1 million worth of stock at the end of December. It was followed by Millennium Management with a $6.2 million position. Other investors bullish on the company included Arrowstreet Capital, Gotham Asset Management, and GLG Partners.

Judging by the fact that Kronos Worldwide, Inc. (NYSE:KRO) has experienced bearish sentiment from the aggregate hedge fund industry, it's easy to see that there exists a select few hedgies that elected to cut their positions entirely last quarter. It's worth mentioning that Matthew Hulsizer's PEAK6 Capital Management said goodbye to the largest investment of all the hedgies followed by Insider Monkey, totaling about $1.2 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also sold off its stock, about $1.2 million worth. These moves are important to note, as aggregate hedge fund interest fell by 3 funds last quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Kronos Worldwide, Inc. (NYSE:KRO) but similarly valued. We will take a look at Park National Corporation (NYSEAMEX:PRK), QEP Resources Inc (NYSE:QEP), Chesapeake Utilities Corporation (NYSE:CPK), and Revlon Inc (NYSE:REV). This group of stocks' market caps match KRO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PRK,7,12521,-5 QEP,25,219271,3 CPK,10,34548,1 REV,26,180187,0 Average,17,111632,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $112 million. That figure was $39 million in KRO's case. Revlon Inc (NYSE:REV) is the most popular stock in this table. On the other hand Park National Corporation (NYSEAMEX:PRK) is the least popular one with only 7 bullish hedge fund positions. Kronos Worldwide, Inc. (NYSE:KRO) 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 KRO as the stock returned 27.8% and outperformed the market by an even larger margin.

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

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