During the fourth quarter the Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by nearly 7 percentage points as investors worried over the possible ramifications of rising interest rates. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only 298 S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Knoll Inc (NYSE:KNL) and see how the stock is affected by the recent hedge fund activity.
Is Knoll Inc (NYSE:KNL) the right pick for your portfolio? Prominent investors are turning bullish. The number of bullish hedge fund bets improved by 8 recently. Our calculations also showed that knl isn't among the 30 most popular stocks among hedge funds. KNL was in 22 hedge funds' portfolios at the end of December. There were 14 hedge funds in our database with KNL holdings at the end of the previous quarter.
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 glance at the key hedge fund action regarding Knoll Inc (NYSE:KNL).
Hedge fund activity in Knoll Inc (NYSE:KNL)
At Q4's end, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 57% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options 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.
More specifically, Adage Capital Management was the largest shareholder of Knoll Inc (NYSE:KNL), with a stake worth $13.7 million reported as of the end of December. Trailing Adage Capital Management was D E Shaw, which amassed a stake valued at $11.5 million. Citadel Investment Group, Marshall Wace LLP, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.
As industrywide interest jumped, specific money managers were leading the bulls' herd. Adage Capital Management, managed by Phill Gross and Robert Atchinson, established the most valuable position in Knoll Inc (NYSE:KNL). Adage Capital Management had $13.7 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also made a $6.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Minhua Zhang's Weld Capital Management, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, and Ken Grossman and Glen Schneider's SG Capital Management.
Let's also examine hedge fund activity in other stocks similar to Knoll Inc (NYSE:KNL). We will take a look at Entercom Communications Corp. (NYSE:ETM), PlayAGS, Inc. (NYSE:AGS), Adecoagro SA (NYSE:AGRO), and Solar Capital Ltd. (NASDAQ:SLRC). This group of stocks' market values match KNL's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ETM,16,120292,2 AGS,11,71998,-4 AGRO,17,186196,1 SLRC,12,46473,1 Average,14,106240,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $106 million. That figure was $61 million in KNL's case. Adecoagro SA (NYSE:AGRO) is the most popular stock in this table. On the other hand PlayAGS, Inc. (NYSE:AGS) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Knoll Inc (NYSE:KNL) 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 KNL, though not to the same extent, as the stock returned 21.1% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.