It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren't usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index's returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you'd fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 8 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in KNOT Offshore Partners LP (NYSE:KNOP).
KNOT Offshore Partners LP (NYSE:KNOP) has seen a decrease in activity from the world's largest hedge funds of late. Our calculations also showed that KNOP isn't among the 30 most popular stocks among hedge funds.
To most stock holders, hedge funds are perceived as worthless, old financial vehicles of yesteryear. While there are greater than 8000 funds with their doors open at present, We choose to focus on the bigwigs of this group, around 750 funds. These money managers have their hands on the majority of the smart money's total asset base, and by keeping track of their highest performing stock picks, Insider Monkey has unsheathed a few investment strategies that have historically defeated Mr. Market. Insider Monkey's flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points per year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_27209" align="aligncenter" width="444"] Jim Simons of Renaissance Technologies[/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 take a look at the fresh hedge fund action encompassing KNOT Offshore Partners LP (NYSE:KNOP).
How are hedge funds trading KNOT Offshore Partners LP (NYSE:KNOP)?
At the end of the third quarter, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -40% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in KNOP over the last 17 quarters. With the smart money's sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in KNOT Offshore Partners LP (NYSE:KNOP), which was worth $13.3 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $6.8 million worth of shares. McKinley Capital Management was also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position McKinley Capital Management allocated the biggest weight to KNOT Offshore Partners LP (NYSE:KNOP), around 0.08% of its portfolio. Arrowstreet Capital is also relatively very bullish on the stock, earmarking 0.02 percent of its 13F equity portfolio to KNOP.
Since KNOT Offshore Partners LP (NYSE:KNOP) has faced bearish sentiment from hedge fund managers, logic holds that there lies a certain "tier" of funds who sold off their positions entirely heading into Q4. It's worth mentioning that Ken Griffin's Citadel Investment Group dumped the biggest investment of the "upper crust" of funds watched by Insider Monkey, valued at about $0.7 million in call options. Ken Griffin's fund, Citadel Investment Group, also said goodbye to its call options, about $0.3 million worth. These moves are important to note, as total hedge fund interest was cut by 2 funds heading into Q4.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as KNOT Offshore Partners LP (NYSE:KNOP) but similarly valued. We will take a look at MacroGenics Inc (NASDAQ:MGNX), National Presto Industries Inc. (NYSE:NPK), TechTarget Inc (NASDAQ:TTGT), and Nicolet Bankshares Inc. (NASDAQ:NCBS). This group of stocks' market values resemble KNOP's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MGNX,14,92212,-5 NPK,9,70014,-3 TTGT,14,59178,-2 NCBS,5,9496,1 Average,10.5,57725,-2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $58 million. That figure was $21 million in KNOP's case. MacroGenics Inc (NASDAQ:MGNX) is the most popular stock in this table. On the other hand Nicolet Bankshares Inc. (NASDAQ:NCBS) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks KNOT Offshore Partners LP (NYSE:KNOP) is even less popular than NCBS. Hedge funds dodged a bullet by taking a bearish stance towards KNOP. Our calculations showed that the top 20 most popular hedge fund stocks returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately KNOP wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); KNOP investors were disappointed as the stock returned 2.2% during the fourth quarter (through 11/22) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.