Is Keane Group, Inc. (NYSE:FRAC) a good bet right now? We like to analyze hedge fund sentiment before doing days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Keane Group, Inc. (NYSE:FRAC) shareholders have witnessed an increase in hedge fund interest recently. FRAC was in 26 hedge funds' portfolios at the end of December. There were 18 hedge funds in our database with FRAC holdings at the end of the previous quarter. Our calculations also showed that frac isn't among the 30 most popular stocks among hedge funds.
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 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 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.
Let's take a gander at the latest hedge fund action encompassing Keane Group, Inc. (NYSE:FRAC).
Hedge fund activity in Keane Group, Inc. (NYSE:FRAC)
Heading into the first quarter of 2019, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 44% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FRAC over the last 14 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
Among these funds, Cerberus Capital Management held the most valuable stake in Keane Group, Inc. (NYSE:FRAC), which was worth $327.9 million at the end of the fourth quarter. On the second spot was Citadel Investment Group which amassed $25.5 million worth of shares. Moreover, Fisher Asset Management, Point72 Asset Management, and Millennium Management were also bullish on Keane Group, Inc. (NYSE:FRAC), allocating a large percentage of their portfolios to this stock.
Now, specific money managers have been driving this bullishness. Arosa Capital Management, managed by Till Bechtolsheimer, established the most valuable position in Keane Group, Inc. (NYSE:FRAC). Arosa Capital Management had $3.6 million invested in the company at the end of the quarter. Simon Sadler's Segantii Capital also made a $1.4 million investment in the stock during the quarter. The other funds with brand new FRAC positions are Peter Muller's PDT Partners, Peter Algert and Kevin Coldiron's Algert Coldiron Investors, and Noam Gottesman's GLG Partners.
Let's also examine hedge fund activity in other stocks similar to Keane Group, Inc. (NYSE:FRAC). These stocks are Trupanion Inc (NASDAQ:TRUP), COMSCORE, Inc. (NASDAQ:SCOR), Gran Tierra Energy Inc. (NYSE:GTE), and Athenex, Inc. (NASDAQ:ATNX). This group of stocks' market caps match FRAC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TRUP,10,130837,1 SCOR,12,190216,-1 GTE,16,249835,0 ATNX,10,67768,3 Average,12,159664,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $160 million. That figure was $442 million in FRAC's case. Gran Tierra Energy Inc. (NYSE:GTE) is the most popular stock in this table. On the other hand Trupanion Inc (NASDAQ:TRUP) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Keane Group, Inc. (NYSE:FRAC) is more popular among hedge funds. 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. Hedge funds were also right about betting on FRAC as the stock returned 47.7% and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.