Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 26% in 2019 (through November 22nd). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of nearly 35% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. That's why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Kohl's Corporation (NYSE:KSS).
Kohl's Corporation (NYSE:KSS) shareholders have witnessed a decrease in activity from the world's largest hedge funds of late. Our calculations also showed that KSS isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_30602" align="aligncenter" width="489"] Philippe Laffont of Coatue Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to go over the key hedge fund action regarding Kohl's Corporation (NYSE:KSS).
Hedge fund activity in Kohl's Corporation (NYSE:KSS)
Heading into the fourth quarter of 2019, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from one quarter earlier. On the other hand, there were a total of 29 hedge funds with a bullish position in KSS a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, AQR Capital Management was the largest shareholder of Kohl's Corporation (NYSE:KSS), with a stake worth $237.2 million reported as of the end of September. Trailing AQR Capital Management was Citadel Investment Group, which amassed a stake valued at $73.5 million. Balyasny Asset Management, Bridgewater Associates, and Steadfast Capital 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 Woodson Capital Management allocated the biggest weight to Kohl's Corporation (NYSE:KSS), around 0.77% of its portfolio. Buckingham Capital Management is also relatively very bullish on the stock, setting aside 0.59 percent of its 13F equity portfolio to KSS.
Judging by the fact that Kohl's Corporation (NYSE:KSS) has witnessed bearish sentiment from the smart money, it's easy to see that there was a specific group of hedgies that elected to cut their entire stakes in the third quarter. At the top of the heap, Renaissance Technologies dropped the largest position of the 750 funds monitored by Insider Monkey, comprising about $149.7 million in stock, and Israel Englander's Millennium Management was right behind this move, as the fund dumped about $34.4 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 2 funds in the third quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Kohl's Corporation (NYSE:KSS) but similarly valued. We will take a look at Caesars Entertainment Corp (NASDAQ:CZR), ON Semiconductor Corporation (NASDAQ:ON), Zions Bancorporation, National Association (NASDAQ:ZION), and Kilroy Realty Corp (NYSE:KRC). This group of stocks' market values are closest to KSS's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CZR,45,3756323,-3 ON,22,428054,-4 ZION,29,468677,-6 KRC,23,218142,7 Average,29.75,1217799,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.75 hedge funds with bullish positions and the average amount invested in these stocks was $1218 million. That figure was $495 million in KSS's case. Caesars Entertainment Corp (NASDAQ:CZR) is the most popular stock in this table. On the other hand ON Semiconductor Corporation (NASDAQ:ON) is the least popular one with only 22 bullish hedge fund positions. Kohl's Corporation (NYSE:KSS) 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately KSS wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); KSS investors were disappointed as the stock returned -5.3% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.