It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year (through September 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Kimball International Inc (NASDAQ:KBAL).
Kimball International Inc (NASDAQ:KBAL) was in 13 hedge funds' portfolios at the end of the second quarter of 2019. KBAL investors should pay attention to an increase in support from the world's most elite money managers in recent months. There were 12 hedge funds in our database with KBAL holdings at the end of the previous quarter. Our calculations also showed that KBAL isn't among the 30 most popular stocks among hedge funds (see 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 former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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 look at the fresh hedge fund action regarding Kimball International Inc (NASDAQ:KBAL).
What have hedge funds been doing with Kimball International Inc (NASDAQ:KBAL)?
At the end of the second quarter, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from one quarter earlier. By comparison, 13 hedge funds held shares or bullish call options in KBAL a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies holds the number one position in Kimball International Inc (NASDAQ:KBAL). Renaissance Technologies has a $45.6 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by Royce & Associates, managed by Chuck Royce, which holds a $37.4 million position; 0.3% of its 13F portfolio is allocated to the company. Other peers with similar optimism encompass Cliff Asness's AQR Capital Management, D. E. Shaw's D E Shaw and Frederick DiSanto's Ancora Advisors.
Now, some big names have been driving this bullishness. Winton Capital Management, managed by David Harding, assembled the largest position in Kimball International Inc (NASDAQ:KBAL). Winton Capital Management had $0.5 million invested in the company at the end of the quarter. Roger Ibbotson's Zebra Capital Management also made a $0.2 million investment in the stock during the quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Kimball International Inc (NASDAQ:KBAL) but similarly valued. We will take a look at WideOpenWest, Inc. (NYSE:WOW), Tristate Capital Holdings Inc (NASDAQ:TSC), Stemline Therapeutics Inc (NASDAQ:STML), and TherapeuticsMD Inc (NASDAQ:TXMD). This group of stocks' market caps match KBAL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WOW,8,15124,-3 TSC,10,47224,-3 STML,17,226395,-3 TXMD,8,21158,-1 Average,10.75,77475,-2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $77 million. That figure was $109 million in KBAL's case. Stemline Therapeutics Inc (NASDAQ:STML) is the most popular stock in this table. On the other hand WideOpenWest, Inc. (NYSE:WOW) is the least popular one with only 8 bullish hedge fund positions. Kimball International Inc (NASDAQ:KBAL) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on KBAL as the stock returned 11.2% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.