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KKR & Co Inc. (KKR): Are Hedge Funds Right About Dumping This Stock?

Debasis Saha

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of KKR & Co Inc. (NYSE:KKR).

KKR & Co Inc. (NYSE:KKR) shareholders have witnessed a decrease in hedge fund interest lately. Our calculations also showed that KKR 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 44 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 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_30493" align="aligncenter" width="400"] Jeffrey Ubben of ValueAct Capital[/caption]

Jeff Ubben VALUEACT CAPITAL

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this successful trader’s “corona catalyst plays“. Also, Europe is set to become the world’s largest cannabis market, so we checked out this European marijuana stock pitch. 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. Keeping this in mind let's take a look at the new hedge fund action regarding KKR & Co Inc. (NYSE:KKR).

What does smart money think about KKR & Co Inc. (NYSE:KKR)?

At Q1's end, a total of 48 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the fourth quarter of 2019. By comparison, 30 hedge funds held shares or bullish call options in KKR a year ago. With hedgies' capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Is KKR A Good Stock To Buy?

Among these funds, ValueAct Capital held the most valuable stake in KKR & Co Inc. (NYSE:KKR), which was worth $1056.2 million at the end of the third quarter. On the second spot was Akre Capital Management which amassed $333 million worth of shares. Diamond Hill Capital, Alkeon Capital Management, and Pzena Investment Management were 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 Blacksheep Fund Management allocated the biggest weight to KKR & Co Inc. (NYSE:KKR), around 27.08% of its 13F portfolio. OCO Capital Partners is also relatively very bullish on the stock, earmarking 22.98 percent of its 13F equity portfolio to KKR.

Seeing as KKR & Co Inc. (NYSE:KKR) has witnessed declining sentiment from the aggregate hedge fund industry, we can see that there is a sect of money managers who were dropping their full holdings by the end of the third quarter. It's worth mentioning that James Parsons's Junto Capital Management dumped the biggest position of the "upper crust" of funds tracked by Insider Monkey, worth about $100.2 million in stock, and Michael Blitzer's Kingstown Capital Management was right behind this move, as the fund said goodbye to about $36.5 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 8 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 KKR & Co Inc. (NYSE:KKR) but similarly valued. We will take a look at Edison International (NYSE:EIX), Seattle Genetics, Inc. (NASDAQ:SGEN), AutoZone, Inc. (NYSE:AZO), and PPG Industries, Inc. (NYSE:PPG). This group of stocks' market valuations are similar to KKR's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EIX,29,1046389,-5 SGEN,27,6153689,-9 AZO,45,1355325,5 PPG,35,393229,0 Average,34,2237158,-2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 34 hedge funds with bullish positions and the average amount invested in these stocks was $2237 million. That figure was $2694 million in KKR's case. AutoZone, Inc. (NYSE:AZO) is the most popular stock in this table. On the other hand Seattle Genetics, Inc. (NASDAQ:SGEN) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks KKR & Co Inc. (NYSE:KKR) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 7.9% in 2020 through May 22nd but still managed to beat the market by 15.6 percentage points. Hedge funds were also right about betting on KKR, though not to the same extent, as the stock returned 15% in Q2 (through May 22nd) and outperformed the market as well.

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Disclosure: None. This article was originally published at Insider Monkey.

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