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The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Korn Ferry (NYSE:KFY) and determine whether the smart money was really smart about this stock.
Is Korn Ferry (NYSE:KFY) a healthy stock for your portfolio? Money managers were getting more optimistic. The number of long hedge fund bets improved by 8 recently. Korn Ferry (NYSE:KFY) was in 28 hedge funds' portfolios at the end of June. The all time high for this statistics is 27. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that KFY isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 20 hedge funds in our database with KFY holdings at the end of March.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 S&P 500 ETFs by more than 56 percentage points since March 2017 (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 stocks that are in our short portfolio.
Nathaniel August of Mangrove Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind let's check out the recent hedge fund action regarding Korn Ferry (NYSE:KFY).
How are hedge funds trading Korn Ferry (NYSE:KFY)?
At the end of June, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 40% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards KFY over the last 20 quarters. With hedge funds' sentiment swirling, there exists a few key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
The largest stake in Korn Ferry (NYSE:KFY) was held by Lakewood Capital Management, which reported holding $28 million worth of stock at the end of September. It was followed by Ariel Investments with a $22.6 million position. Other investors bullish on the company included Armistice Capital, Royce & Associates, and Kerrisdale Capital. In terms of the portfolio weights assigned to each position Billings Capital Management allocated the biggest weight to Korn Ferry (NYSE:KFY), around 4.67% of its 13F portfolio. Kerrisdale Capital is also relatively very bullish on the stock, designating 2.3 percent of its 13F equity portfolio to KFY.
As one would reasonably expect, specific money managers have jumped into Korn Ferry (NYSE:KFY) headfirst. Mangrove Partners, managed by Nathaniel August, created the biggest position in Korn Ferry (NYSE:KFY). Mangrove Partners had $5.5 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also initiated a $4.2 million position during the quarter. The other funds with new positions in the stock are Eric F. Billings's Billings Capital Management, Renaissance Technologies, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Korn Ferry (NYSE:KFY) but similarly valued. We will take a look at Heartland Express, Inc. (NASDAQ:HTLD), Phoenix Tree Holdings Limited (NYSE:DNK), BMC Stock Holdings, Inc. (NASDAQ:BMCH), Jack in the Box Inc. (NASDAQ:JACK), Adverum Biotechnologies, Inc. (NASDAQ:ADVM), American Assets Trust, Inc (NYSE:AAT), and BEST Inc. (NYSE:BEST). This group of stocks' market values resemble KFY's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HTLD,13,46345,2 DNK,3,22665,0 BMCH,26,307670,3 JACK,31,291611,3 ADVM,25,702737,0 AAT,20,34529,5 BEST,6,18518,0 Average,17.7,203439,1.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.7 hedge funds with bullish positions and the average amount invested in these stocks was $203 million. That figure was $168 million in KFY's case. Jack in the Box Inc. (NASDAQ:JACK) is the most popular stock in this table. On the other hand Phoenix Tree Holdings Limited (NYSE:DNK) is the least popular one with only 3 bullish hedge fund positions. Korn Ferry (NYSE:KFY) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for KFY is 84.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 21.3% in 2020 through September 25th and beat the market by 17.7 percentage points. Unfortunately KFY wasn't nearly as popular as these 10 stocks and hedge funds that were betting on KFY were disappointed as the stock returned -4.4% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.