Hedge funds are not perfect. They have their bad picks just like everyone else. Facebook, a stock hedge funds have loved dearly, lost nearly 40% of its value at one point in 2018. Although hedge funds are not perfect, their consensus picks do deliver solid returns, however. Our data show the top 20 S&P 500 stocks among hedge funds beat the S&P 500 Index by nearly 10 percentage points so far in 2019. Because hedge funds have a lot of resources and their consensus picks do well, we pay attention to what they think. In this article, we analyze what the elite funds think of Knoll Inc (NYSE:KNL).
Knoll Inc (NYSE:KNL) has experienced a decrease in hedge fund sentiment lately. Our calculations also showed that KNL isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
[caption id="attachment_221556" align="alignnone" width="600"] Richard Driehaus of Driehaus Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's take a glance at the recent hedge fund action surrounding Knoll Inc (NYSE:KNL).
What does smart money think about Knoll Inc (NYSE:KNL)?
At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the previous quarter. On the other hand, there were a total of 14 hedge funds with a bullish position in KNL a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Driehaus Capital held the most valuable stake in Knoll Inc (NYSE:KNL), which was worth $17.2 million at the end of the third quarter. On the second spot was D E Shaw which amassed $10 million worth of shares. Renaissance Technologies, Citadel Investment Group, and AQR Capital Management 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 Driehaus Capital allocated the biggest weight to Knoll Inc (NYSE:KNL), around 0.56% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, designating 0.4 percent of its 13F equity portfolio to KNL.
Because Knoll Inc (NYSE:KNL) has witnessed a decline in interest from the aggregate hedge fund industry, logic holds that there was a specific group of hedgies that slashed their positions entirely last quarter. Interestingly, Phill Gross and Robert Atchinson's Adage Capital Management sold off the largest position of the "upper crust" of funds tracked by Insider Monkey, worth close to $15.5 million in stock, and Israel Englander's Millennium Management was right behind this move, as the fund cut about $7.1 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 1 funds last quarter.
Let's check out hedge fund activity in other stocks similar to Knoll Inc (NYSE:KNL). These stocks are Waddell & Reed Financial, Inc. (NYSE:WDR), Nexa Resources S.A. (NYSE:NEXA), National HealthCare Corporation (NYSEAMEX:NHC), and City Holding Company (NASDAQ:CHCO). This group of stocks' market valuations are similar to KNL's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WDR,18,124549,0 NEXA,6,6943,-3 NHC,7,63580,-2 CHCO,9,25056,-2 Average,10,55032,-1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $55 million. That figure was $59 million in KNL's case. Waddell & Reed Financial, Inc. (NYSE:WDR) is the most popular stock in this table. On the other hand Nexa Resources S.A. (NYSE:NEXA) is the least popular one with only 6 bullish hedge fund positions. Knoll Inc (NYSE:KNL) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on KNL, though not to the same extent, as the stock returned 8.7% during the first two months of the fourth quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.