At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Tiger Global because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.
Kellogg Company (NYSE:K) investors should pay attention to an increase in activity from the world's largest hedge funds recently. Our calculations also showed that K isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a peek at the fresh hedge fund action surrounding Kellogg Company (NYSE:K).
What does smart money think about Kellogg Company (NYSE:K)?
At Q2's end, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards K over the last 16 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Kellogg Company (NYSE:K) was held by Renaissance Technologies, which reported holding $295.9 million worth of stock at the end of March. It was followed by Pzena Investment Management with a $53.2 million position. Other investors bullish on the company included Bridgewater Associates, Millennium Management, and GAMCO Investors.
As aggregate interest increased, key hedge funds were breaking ground themselves. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, initiated the largest position in Kellogg Company (NYSE:K). Marshall Wace LLP had $7.2 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also made a $5.1 million investment in the stock during the quarter. The following funds were also among the new K investors: Gavin Saitowitz and Cisco J. del Valle's Springbok Capital, Minhua Zhang's Weld Capital Management, and Alec Litowitz and Ross Laser's Magnetar Capital.
Let's now take a look at hedge fund activity in other stocks similar to Kellogg Company (NYSE:K). We will take a look at Shinhan Financial Group Co., Ltd. (NYSE:SHG), Vulcan Materials Company (NYSE:VMC), AmerisourceBergen Corporation (NYSE:ABC), and Cheniere Energy, Inc. (NYSEAMEX:LNG). This group of stocks' market caps are similar to K's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SHG,5,7950,1 VMC,52,2028909,4 ABC,36,624583,8 LNG,43,4383992,-10 Average,34,1761359,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 34 hedge funds with bullish positions and the average amount invested in these stocks was $1761 million. That figure was $529 million in K's case. Vulcan Materials Company (NYSE:VMC) is the most popular stock in this table. On the other hand Shinhan Financial Group Co., Ltd. (NYSE:SHG) is the least popular one with only 5 bullish hedge fund positions. Kellogg Company (NYSE:K) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on K as the stock returned 21.2% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.