A market correction in the fourth quarter, spurred by a number of global macroeconomic concerns and rising interest rates ended up having a negative impact on the markets and many hedge funds as a result. The stocks of smaller companies were especially hard hit during this time as investors fled to investments seen as being safer. This is evident in the fact that the Russell 2000 ETF underperformed the S&P 500 ETF by nearly 7 percentage points during the fourth quarter. We also received indications that hedge funds were trimming their positions amid the market volatility and uncertainty, and given their greater inclination towards smaller cap stocks than other investors, it follows that a stronger sell-off occurred in those stocks. Let's study the hedge fund sentiment to see how those concerns affected their ownership of Knowles Corp (NYSE:KN) during the quarter.
Is Knowles Corp (NYSE:KN) the right pick for your portfolio? Money managers are in a bullish mood. The number of long hedge fund positions moved up by 12 lately. Our calculations also showed that KN isn't among the 30 most popular stocks among hedge funds. KN was in 24 hedge funds' portfolios at the end of December. There were 12 hedge funds in our database with KN positions at the end of the previous quarter.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to view the latest hedge fund action encompassing Knowles Corp (NYSE:KN).
What have hedge funds been doing with Knowles Corp (NYSE:KN)?
Heading into the first quarter of 2019, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 100% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options in KN a year ago. With hedge funds' sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
Among these funds, Ariel Investments held the most valuable stake in Knowles Corp (NYSE:KN), which was worth $34.8 million at the end of the fourth quarter. On the second spot was D E Shaw which amassed $15.1 million worth of shares. Moreover, Royce & Associates, Winton Capital Management, and Millennium Management were also bullish on Knowles Corp (NYSE:KN), allocating a large percentage of their portfolios to this stock.
As aggregate interest increased, specific money managers have been driving this bullishness. Ariel Investments, managed by John W. Rogers, initiated the most outsized position in Knowles Corp (NYSE:KN). Ariel Investments had $34.8 million invested in the company at the end of the quarter. David Harding's Winton Capital Management also made a $10.1 million investment in the stock during the quarter. The other funds with brand new KN positions are Steve Cohen's Point72 Asset Management, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, and Paul Marshall and Ian Wace's Marshall Wace LLP.
Let's now review hedge fund activity in other stocks similar to Knowles Corp (NYSE:KN). These stocks are First Commonwealth Financial Corporation (NYSE:FCF), LexinFintech Holdings Ltd. (NASDAQ:LX), Cango Inc. (NYSE:CANG), and Federal Signal Corporation (NYSE:FSS). This group of stocks' market caps resemble KN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FCF,13,39783,2 LX,4,3570,-4 CANG,2,814,0 FSS,22,70746,4 Average,10.25,28728,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $29 million. That figure was $104 million in KN's case. Federal Signal Corporation (NYSE:FSS) is the most popular stock in this table. On the other hand Cango Inc. (NYSE:CANG) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Knowles Corp (NYSE:KN) 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 KN as the stock returned 38.2% 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.