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Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Kimbell Royalty Partners (NYSE:KRP)? The smart money sentiment can provide an answer to this question.
Kimbell Royalty Partners (NYSE:KRP) has seen an increase in enthusiasm from smart money in recent months. Kimbell Royalty Partners (NYSE:KRP) was in 4 hedge funds' portfolios at the end of September. The all time high for this statistics is 9. Our calculations also showed that KRP isn't among the 30 most popular stocks among hedge funds (click for Q3 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Jim Simons of Renaissance Technologies
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we're going to review the fresh 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 third quarter, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from the previous quarter. The graph below displays the number of hedge funds with bullish position in KRP over the last 21 quarters. With the smart money's sentiment swirling, there exists an "upper tier" of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Nokomis Capital, managed by Brett Hendrickson, holds the largest position in Kimbell Royalty Partners (NYSE:KRP). Nokomis Capital has a $2.4 million position in the stock, comprising 1.1% of its 13F portfolio. On Nokomis Capital's heels is Murray Stahl of Horizon Asset Management, with a $1 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other professional money managers with similar optimism encompass Renaissance Technologies, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and . In terms of the portfolio weights assigned to each position Nokomis Capital allocated the biggest weight to Kimbell Royalty Partners (NYSE:KRP), around 1.13% of its 13F portfolio. Horizon Asset Management is also relatively very bullish on the stock, setting aside 0.04 percent of its 13F equity portfolio to KRP.
As industrywide interest jumped, key money managers were leading the bulls' herd. Renaissance Technologies, established the biggest position in Kimbell Royalty Partners (NYSE:KRP). Renaissance Technologies had $0.3 million invested in the company at the end of the quarter.
Let's now review 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 Bicycle Therapeutics plc (NASDAQ:BCYC), dMY Technology Group, Inc. (NYSE:DMYT), Century Bancorp, Inc. (NASDAQ:CNBKA), Teekay Tankers Ltd. (NYSE:TNK), Par Pacific Holdings, Inc. (NYSE:PARR), IDEAYA Biosciences, Inc. (NASDAQ:IDYA), and Nam Tai Property Inc (NYSE:NTP). All of these stocks' market caps resemble KRP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BCYC,7,73961,1 DMYT,26,82516,4 CNBKA,4,14693,1 TNK,13,20186,-4 PARR,15,63142,1 IDYA,12,69419,0 NTP,4,23101,-2 Average,11.6,49574,0.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.6 hedge funds with bullish positions and the average amount invested in these stocks was $50 million. That figure was $4 million in KRP's case. dMY Technology Group, Inc. (NYSE:DMYT) is the most popular stock in this table. On the other hand Century Bancorp, Inc. (NASDAQ:CNBKA) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Kimbell Royalty Partners (NYSE:KRP) is even less popular than CNBKA. Our overall hedge fund sentiment score for KRP is 19.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds clearly dropped the ball on KRP as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on KRP as the stock returned 32.4% since Q3 (through November 27th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.