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Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Korea Electric Power Corporation (NYSE:KEP).
Korea Electric Power Corporation (NYSE:KEP) has experienced a decrease in activity from the world's largest hedge funds of late. KEP was in 3 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 7 hedge funds in our database with KEP positions at the end of the previous quarter. Our calculations also showed that KEP isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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Ken Griffin of Citadel Investment Group[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind let's analyze the latest hedge fund action surrounding Korea Electric Power Corporation (NYSE:KEP).
Hedge fund activity in Korea Electric Power Corporation (NYSE:KEP)
At the end of the fourth quarter, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of -57% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards KEP over the last 18 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
More specifically, Kopernik Global Investors was the largest shareholder of Korea Electric Power Corporation (NYSE:KEP), with a stake worth $25 million reported as of the end of September. Trailing Kopernik Global Investors was Orbis Investment Management, which amassed a stake valued at $20.4 million. Springbok Capital 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 Kopernik Global Investors allocated the biggest weight to Korea Electric Power Corporation (NYSE:KEP), around 4.48% of its 13F portfolio. Orbis Investment Management is also relatively very bullish on the stock, designating 0.14 percent of its 13F equity portfolio to KEP.
Because Korea Electric Power Corporation (NYSE:KEP) has faced falling interest from the entirety of the hedge funds we track, it's safe to say that there is a sect of hedgies that elected to cut their positions entirely heading into Q4. Interestingly, Ken Griffin's Citadel Investment Group dropped the biggest stake of the "upper crust" of funds followed by Insider Monkey, valued at close to $0.3 million in stock. Israel Englander's fund, Millennium Management, also dropped its stock, about $0.3 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 4 funds heading into Q4.
Let's go over hedge fund activity in other stocks similar to Korea Electric Power Corporation (NYSE:KEP). We will take a look at Kansas City Southern (NYSE:KSU), Old Dominion Freight Line (NASDAQ:ODFL), Burlington Stores Inc (NYSE:BURL), and Waters Corporation (NYSE:WAT). This group of stocks' market valuations are closest to KEP's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KSU,40,414826,7 ODFL,34,321532,10 BURL,36,1375271,-3 WAT,27,568485,-1 Average,34.25,670029,3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.25 hedge funds with bullish positions and the average amount invested in these stocks was $670 million. That figure was $45 million in KEP's case. Kansas City Southern (NYSE:KSU) is the most popular stock in this table. On the other hand Waters Corporation (NYSE:WAT) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Korea Electric Power Corporation (NYSE:KEP) is even less popular than WAT. Hedge funds dodged a bullet by taking a bearish stance towards KEP. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but managed to beat the market by 3.2 percentage points. Unfortunately KEP wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); KEP investors were disappointed as the stock returned -38.8% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.