In this article we will check out the progression of hedge fund sentiment towards Korea Electric Power Corporation (NYSE:KEP) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is Korea Electric Power Corporation (NYSE:KEP) undervalued? The smart money is betting on the stock. The number of long hedge fund bets moved up by 4 lately. Our calculations also showed that KEP isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: 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' 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 58 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.
[caption id="attachment_845793" align="aligncenter" width="402"] Peter Rathjens of Arrowstreet Capital[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let's take a glance at the fresh hedge fund action regarding Korea Electric Power Corporation (NYSE:KEP).
How have hedgies been trading Korea Electric Power Corporation (NYSE:KEP)?
At the end of the first quarter, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 133% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in KEP over the last 18 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Korea Electric Power Corporation (NYSE:KEP) was held by Kopernik Global Investors, which reported holding $16.2 million worth of stock at the end of September. It was followed by Orbis Investment Management with a $13 million position. Other investors bullish on the company included D E Shaw, Citadel Investment Group, and Millennium Management. In terms of the portfolio weights assigned to each position Kopernik Global Investors allocated the biggest weight to Korea Electric Power Corporation (NYSE:KEP), around 3.45% of its 13F portfolio. Orbis Investment Management is also relatively very bullish on the stock, earmarking 0.12 percent of its 13F equity portfolio to KEP.
As industrywide interest jumped, key money managers have been driving this bullishness. D E Shaw, managed by D. E. Shaw, assembled the most valuable position in Korea Electric Power Corporation (NYSE:KEP). D E Shaw had $0.3 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also made a $0.2 million investment in the stock during the quarter. The following funds were also among the new KEP investors: Israel Englander's Millennium Management, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, and Paul Marshall and Ian Wace's Marshall Wace LLP.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Korea Electric Power Corporation (NYSE:KEP) but similarly valued. These stocks are Magna International Inc. (NYSE:MGA), Booz Allen Hamilton Holding Corporation (NYSE:BAH), Masco Corporation (NYSE:MAS), and Agnico Eagle Mines Limited (NYSE:AEM). This group of stocks' market valuations resemble KEP's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MGA,22,412543,-1 BAH,27,276427,-7 MAS,34,489853,-11 AEM,25,392047,-9 Average,27,392718,-7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $393 million. That figure was $30 million in KEP's case. Masco Corporation (NYSE:MAS) is the most popular stock in this table. On the other hand Magna International Inc. (NYSE:MGA) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Korea Electric Power Corporation (NYSE:KEP) is even less popular than MGA. Hedge funds dodged a bullet by taking a bearish stance towards KEP. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.9% in 2020 through June 10th but managed to beat the market by 14.2 percentage points. Unfortunately KEP wasn't nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); KEP investors were disappointed as the stock returned 20.9% during the second quarter (through June 10th) 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 most of these stocks already outperformed the market so far in 2020.
Disclosure: None. This article was originally published at Insider Monkey.