We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Koppers Holdings Inc. (NYSE:KOP) and determine whether hedge funds skillfully traded this stock.
Koppers Holdings Inc. (NYSE:KOP) investors should pay attention to a decrease in support from the world's most elite money managers of late. Our calculations also showed that KOP 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.
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' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
[caption id="attachment_25981" align="aligncenter" width="399"] Paul Tudor Jones of Tudor Investment Corp[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let's go over the new hedge fund action encompassing Koppers Holdings Inc. (NYSE:KOP).
How have hedgies been trading Koppers Holdings Inc. (NYSE:KOP)?
At the end of the first quarter, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the previous quarter. By comparison, 13 hedge funds held shares or bullish call options in KOP a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the largest position in Koppers Holdings Inc. (NYSE:KOP). Arrowstreet Capital has a $2.8 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by AQR Capital Management, managed by Cliff Asness, which holds a $2.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining professional money managers with similar optimism encompass Mitch Cantor's Mountain Lake Investment Management, Renaissance Technologies and Matthew Hulsizer's PEAK6 Capital Management. In terms of the portfolio weights assigned to each position Mountain Lake Investment Management allocated the biggest weight to Koppers Holdings Inc. (NYSE:KOP), around 1.42% of its 13F portfolio. Ellington is also relatively very bullish on the stock, setting aside 0.04 percent of its 13F equity portfolio to KOP.
Judging by the fact that Koppers Holdings Inc. (NYSE:KOP) has witnessed declining sentiment from hedge fund managers, it's safe to say that there were a few hedgies that slashed their positions entirely in the first quarter. It's worth mentioning that Brandon Osten's Venator Capital Management said goodbye to the biggest position of the "upper crust" of funds tracked by Insider Monkey, comprising about $2.5 million in stock. Noam Gottesman's fund, GLG Partners, also sold off its stock, about $2.1 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 3 funds in the first quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Koppers Holdings Inc. (NYSE:KOP) but similarly valued. These stocks are Kraton Corporation (NYSE:KRA), TransMedics Group, Inc. (NASDAQ:TMDX), Oppenheimer Holdings Inc. (NYSE:OPY), and Syros Pharmaceuticals, Inc. (NASDAQ:SYRS). All of these stocks' market caps match KOP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KRA,14,22813,-5 TMDX,3,48101,-2 OPY,9,22234,1 SYRS,11,43061,-2 Average,9.25,34052,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $34 million. That figure was $10 million in KOP's case. Kraton Corporation (NYSE:KRA) is the most popular stock in this table. On the other hand TransMedics Group, Inc. (NASDAQ:TMDX) is the least popular one with only 3 bullish hedge fund positions. Koppers Holdings Inc. (NYSE:KOP) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on KOP as the stock returned 52.3% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.