The market has been volatile in the last few months as the Federal Reserve continued its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q2 and the beginning of Q3. In this article, we analyze what the smart money thinks of Kimbell Royalty Partners (NYSE:KRP) and find out how it is affected by hedge funds' moves.
Kimbell Royalty Partners (NYSE:KRP) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 5 hedge funds' portfolios at the end of the second quarter of 2019. At the end of this article we will also compare KRP to other stocks including CBTX, Inc. (NASDAQ:CBTX), Horizon Bancorp (NASDAQ:HBNC), and National Energy Services Reunited Corp. (NASDAQ:NESR) to get a better sense of its popularity. Our calculations also showed that KRP isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 40 percentage points since May 2014 through May 30, 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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a glance at the new hedge fund action surrounding Kimbell Royalty Partners (NYSE:KRP).
What have hedge funds been doing with Kimbell Royalty Partners (NYSE:KRP)?
At the end of the second quarter, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards KRP over the last 16 quarters. With hedgies' sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
More specifically, Nokomis Capital was the largest shareholder of Kimbell Royalty Partners (NYSE:KRP), with a stake worth $6.5 million reported as of the end of March. Trailing Nokomis Capital was Soros Fund Management, which amassed a stake valued at $4.9 million. Moore Global Investments, Horizon Asset Management, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the second quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Kimbell Royalty Partners (NYSE:KRP) but similarly valued. We will take a look at CBTX, Inc. (NASDAQ:CBTX), Horizon Bancorp, Inc. (NASDAQ:HBNC), National Energy Services Reunited Corp. (NASDAQ:NESR), and The Providence Service Corporation (NASDAQ:PRSC). All of these stocks' market caps match KRP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CBTX,7,13137,-1 HBNC,11,23484,1 NESR,7,26596,-1 PRSC,14,163226,2 Average,9.75,56611,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $57 million. That figure was $17 million in KRP's case. The Providence Service Corporation (NASDAQ:PRSC) is the most popular stock in this table. On the other hand CBTX, Inc. (NASDAQ:CBTX) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Kimbell Royalty Partners (NYSE:KRP) is even less popular than CBTX. Hedge funds dodged a bullet by taking a bearish stance towards KRP. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately KRP wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); KRP investors were disappointed as the stock returned -6.6% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.