Hedge funds run by legendary names like George Soros and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant outperformance. That's why we pay special attention to hedge fund activity in these stocks.
Is Kforce Inc. (NASDAQ:KFRC) ready to rally soon? The smart money is becoming hopeful. The number of bullish hedge fund positions moved up by 1 lately. Our calculations also showed that KFRC isn't among the 30 most popular stocks among hedge funds. KFRC was in 22 hedge funds' portfolios at the end of March. There were 21 hedge funds in our database with KFRC holdings at the end of the previous quarter.
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 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.
Let's take a glance at the latest hedge fund action regarding Kforce Inc. (NASDAQ:KFRC).
What does smart money think about Kforce Inc. (NASDAQ:KFRC)?
At Q1's end, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from one quarter earlier. On the other hand, there were a total of 15 hedge funds with a bullish position in KFRC a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, AQR Capital Management was the largest shareholder of Kforce Inc. (NASDAQ:KFRC), with a stake worth $30.2 million reported as of the end of March. Trailing AQR Capital Management was Royce & Associates, which amassed a stake valued at $10.9 million. Arrowstreet Capital, GLG Partners, and Renaissance Technologies were also very fond of the stock, giving the stock large weights in their portfolios.
Now, key money managers were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, assembled the biggest call position in Kforce Inc. (NASDAQ:KFRC). Citadel Investment Group had $3 million invested in the company at the end of the quarter. Matthew Hulsizer's PEAK6 Capital Management also made a $2.1 million investment in the stock during the quarter. The following funds were also among the new KFRC investors: Paul Marshall and Ian Wace's Marshall Wace LLP and Ronald Hua's Qtron Investments.
Let's now take a look at hedge fund activity in other stocks similar to Kforce Inc. (NASDAQ:KFRC). These stocks are National Energy Services Reunited Corp. (NASDAQ:NESR), HealthStream, Inc. (NASDAQ:HSTM), NextPoint Residential Trust Inc (NYSE:NXRT), and Precision BioSciences, Inc. (NASDAQ:DTIL). All of these stocks' market caps resemble KFRC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NESR,8,34574,4 HSTM,14,49266,0 NXRT,10,145693,1 DTIL,14,91003,14 Average,11.5,80134,4.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $80 million. That figure was $79 million in KFRC's case. HealthStream, Inc. (NASDAQ:HSTM) is the most popular stock in this table. On the other hand National Energy Services Reunited Corp. (NASDAQ:NESR) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Kforce Inc. (NASDAQ:KFRC) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Hedge funds were also right about betting on KFRC, though not to the same extent, as the stock returned 4.4% during the same period and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.