How do you pick the next stock to invest in? One way would be to spend hours of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Kimball Electronics Inc (NASDAQ:KE).
Kimball Electronics Inc (NASDAQ:KE) was in 7 hedge funds' portfolios at the end of the fourth quarter of 2018. KE investors should pay attention to a decrease in hedge fund interest lately. There were 9 hedge funds in our database with KE positions at the end of the previous quarter. Our calculations also showed that KE isn't among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? 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 market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to take a look at the latest hedge fund action regarding Kimball Electronics Inc (NASDAQ:KE).
What have hedge funds been doing with Kimball Electronics Inc (NASDAQ:KE)?
At the end of the fourth quarter, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -22% from the second quarter of 2018. On the other hand, there were a total of 11 hedge funds with a bullish position in KE a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Kimball Electronics Inc (NASDAQ:KE) was held by Royce & Associates, which reported holding $8.6 million worth of stock at the end of December. It was followed by Renaissance Technologies with a $6.9 million position. Other investors bullish on the company included Ancora Advisors, Algert Coldiron Investors, and D E Shaw.
Since Kimball Electronics Inc (NASDAQ:KE) has faced declining sentiment from the entirety of the hedge funds we track, it's easy to see that there lies a certain "tier" of money managers who sold off their entire stakes by the end of the third quarter. At the top of the heap, Cliff Asness's AQR Capital Management said goodbye to the largest stake of the 700 funds monitored by Insider Monkey, worth about $3.3 million in stock. Israel Englander's fund, Millennium Management, also cut its stock, about $0.5 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 2 funds by the end of the third quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Kimball Electronics Inc (NASDAQ:KE) but similarly valued. These stocks are Quanterix Corporation (NASDAQ:QTRX), DBV Technologies SA - ADR (NASDAQ:DBVT), City Office REIT Inc (NYSE:CIO), and William Lyon Homes (NYSE:WLH). This group of stocks' market values match KE's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position QTRX,7,30607,0 DBVT,5,42725,-4 CIO,6,20006,0 WLH,20,108929,6 Average,9.5,50567,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $51 million. That figure was $25 million in KE's case. William Lyon Homes (NYSE:WLH) is the most popular stock in this table. On the other hand DBV Technologies SA - ADR (NASDAQ:DBVT) is the least popular one with only 5 bullish hedge fund positions. Kimball Electronics Inc (NASDAQ:KE) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately KE wasn't nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); KE investors were disappointed as the stock returned -0.8% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.