U.S. markets close in 40 minutes

Hedge Funds Aren’t Crazy About Kaiser Aluminum Corp. (KALU) Anymore

Debasis Saha

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 821 13F filings submitted by hedge funds and prominent investors. These filings show these funds' portfolio positions as of March 31st, 2020. In this article we are going to take a look at smart money sentiment towards Kaiser Aluminum Corp. (NASDAQ:KALU).

Kaiser Aluminum Corp. (NASDAQ:KALU) was in 16 hedge funds' portfolios at the end of March. KALU investors should be aware of a decrease in activity from the world's largest hedge funds in recent months. There were 17 hedge funds in our database with KALU holdings at the end of the previous quarter. Our calculations also showed that KALU isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_745225" align="aligncenter" width="400"] Noam Gottesman of GLG Partners[/caption]

Noam Gottesman GLG Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology's influence will go beyond online payments. So, we are checking out this futurist's moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to take a glance at the latest hedge fund action encompassing Kaiser Aluminum Corp. (NASDAQ:KALU).

What does smart money think about Kaiser Aluminum Corp. (NASDAQ:KALU)?

At Q1's end, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from one quarter earlier. On the other hand, there were a total of 19 hedge funds with a bullish position in KALU a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

Is KALU A Good Stock To Buy?

More specifically, Renaissance Technologies was the largest shareholder of Kaiser Aluminum Corp. (NASDAQ:KALU), with a stake worth $26.3 million reported as of the end of September. Trailing Renaissance Technologies was GLG Partners, which amassed a stake valued at $12.1 million. Fisher Asset Management, Millennium Management, and Citadel Investment Group 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 Third Avenue Management allocated the biggest weight to Kaiser Aluminum Corp. (NASDAQ:KALU), around 0.36% of its 13F portfolio. MFP Investors is also relatively very bullish on the stock, designating 0.12 percent of its 13F equity portfolio to KALU.

Since Kaiser Aluminum Corp. (NASDAQ:KALU) has faced a decline in interest from the entirety of the hedge funds we track, it's easy to see that there were a few fund managers who were dropping their entire stakes last quarter. It's worth mentioning that Cliff Asness's AQR Capital Management dropped the largest investment of the "upper crust" of funds monitored by Insider Monkey, worth about $0.5 million in stock. Richard Driehaus's fund, Driehaus Capital, also dropped its stock, about $0.5 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 1 funds last quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Kaiser Aluminum Corp. (NASDAQ:KALU) but similarly valued. We will take a look at Rush Enterprises, Inc. (NASDAQ:RUSHB), National HealthCare Corporation (NYSE:NHC), Kontoor Brands, Inc. (NASDAQ:KTB), and Banco Macro SA (NYSE:BMA). All of these stocks' market caps resemble KALU's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RUSHB,3,27046,-1 NHC,11,55616,0 KTB,16,33264,2 BMA,8,55211,1 Average,9.5,42784,0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $43 million. That figure was $75 million in KALU's case. Kontoor Brands, Inc. (NASDAQ:KTB) is the most popular stock in this table. On the other hand Rush Enterprises, Inc. (NASDAQ:RUSHB) is the least popular one with only 3 bullish hedge fund positions. Kaiser Aluminum Corp. (NASDAQ:KALU) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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 gained 13.3% in 2020 through June 25th but beat the market by 16.8 percentage points. Unfortunately KALU wasn't nearly as popular as these 10 stocks and hedge funds that were betting on KALU were disappointed as the stock returned 3.7% during the same time 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

[company-follow-email id=811596][/company-follow-email]

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

Related Content