Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Kontoor Brands, Inc. (NYSE:KTB) investors should pay attention to an increase in hedge fund interest lately. KTB was in 21 hedge funds' portfolios at the end of September. There were 13 hedge funds in our database with KTB holdings at the end of the previous quarter. Our calculations also showed that KTB isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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' 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_339612" align="aligncenter" width="450"] Kerr Neilson of Platinum Asset Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to view the new hedge fund action regarding Kontoor Brands, Inc. (NYSE:KTB).
What have hedge funds been doing with Kontoor Brands, Inc. (NYSE:KTB)?
Heading into the fourth quarter of 2019, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of 62% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards KTB over the last 17 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Wallace Capital Management, managed by Scott Wallace, holds the number one position in Kontoor Brands, Inc. (NYSE:KTB). Wallace Capital Management has a $10.9 million position in the stock, comprising 1.4% of its 13F portfolio. Coming in second is Israel Englander of Millennium Management, with a $9 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other peers that are bullish comprise Frederick DiSanto's Ancora Advisors, Ken Griffin's Citadel Investment Group and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital. In terms of the portfolio weights assigned to each position Cloverdale Capital Management allocated the biggest weight to Kontoor Brands, Inc. (NYSE:KTB), around 2.11% of its 13F portfolio. Wallace Capital Management is also relatively very bullish on the stock, earmarking 1.43 percent of its 13F equity portfolio to KTB.
As aggregate interest increased, specific money managers were leading the bulls' herd. Wallace Capital Management, managed by Scott Wallace, assembled the most outsized position in Kontoor Brands, Inc. (NYSE:KTB). Wallace Capital Management had $10.9 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also initiated a $7.5 million position during the quarter. The other funds with brand new KTB positions are Kerr Neilson's Platinum Asset Management, John Overdeck and David Siegel's Two Sigma Advisors, and C. Jonathan Gattman's Cloverdale Capital Management.
Let's now take a look at hedge fund activity in other stocks similar to Kontoor Brands, Inc. (NYSE:KTB). These stocks are Acushnet Holdings Corp. (NYSE:GOLF), NeoGenomics, Inc. (NASDAQ:NEO), Insight Enterprises, Inc. (NASDAQ:NSIT), and PTC Therapeutics, Inc. (NASDAQ:PTCT). This group of stocks' market caps resemble KTB's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GOLF,12,21329,1 NEO,14,38280,-3 NSIT,21,115936,7 PTCT,34,557929,6 Average,20.25,183369,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $183 million. That figure was $71 million in KTB's case. PTC Therapeutics, Inc. (NASDAQ:PTCT) is the most popular stock in this table. On the other hand Acushnet Holdings Corp. (NYSE:GOLF) is the least popular one with only 12 bullish hedge fund positions. Kontoor Brands, Inc. (NYSE:KTB) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately KTB wasn't nearly as popular as these 20 stocks and hedge funds that were betting on KTB were disappointed as the stock returned 2.1% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.