Hedge funds are known to underperform the bull markets but that's not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year through September 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds' consensus stock picks rather than directly investing in hedge funds. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Korn Ferry (NYSE:KFY).
Korn Ferry (NYSE:KFY) has seen an increase in activity from the world's largest hedge funds recently. KFY was in 22 hedge funds' portfolios at the end of the second quarter of 2019. There were 21 hedge funds in our database with KFY holdings at the end of the previous quarter. Our calculations also showed that KFY 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.
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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a 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 check out the fresh hedge fund action surrounding Korn Ferry (NYSE:KFY).
How have hedgies been trading Korn Ferry (NYSE:KFY)?
At the end of the second quarter, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from one quarter earlier. On the other hand, there were a total of 21 hedge funds with a bullish position in KFY a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, GLG Partners held the most valuable stake in Korn Ferry (NYSE:KFY), which was worth $40.7 million at the end of the second quarter. On the second spot was Royce & Associates which amassed $16.3 million worth of shares. Moreover, Ariel Investments, Marshall Wace LLP, and Renaissance Technologies were also bullish on Korn Ferry (NYSE:KFY), allocating a large percentage of their portfolios to this stock.
As one would reasonably expect, specific money managers were leading the bulls' herd. Renaissance Technologies, established the most outsized position in Korn Ferry (NYSE:KFY). Renaissance Technologies had $8.8 million invested in the company at the end of the quarter. D. E. Shaw's D E Shaw also initiated a $5.2 million position during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Alexander Roepers's Atlantic Investment Management, and Karim Abbadi and Edward McBride's Centiva Capital.
Let's go over hedge fund activity in other stocks similar to Korn Ferry (NYSE:KFY). We will take a look at Simmons First National Corporation (NASDAQ:SFNC), Taylor Morrison Home Corp (NYSE:TMHC), Alliance Resource Partners, L.P. (NASDAQ:ARLP), and Fanhua Inc. (NASDAQ:FANH). All of these stocks' market caps are similar to KFY's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SFNC,12,31976,3 TMHC,19,259749,7 ARLP,9,102943,1 FANH,9,28504,-1 Average,12.25,105793,2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $106 million. That figure was $135 million in KFY's case. Taylor Morrison Home Corp (NYSE:TMHC) is the most popular stock in this table. On the other hand Alliance Resource Partners, L.P. (NASDAQ:ARLP) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Korn Ferry (NYSE:KFY) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately KFY wasn't nearly as popular as these 20 stocks and hedge funds that were betting on KFY were disappointed as the stock returned -3.1% 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 in Q3.
Disclosure: None. This article was originally published at Insider Monkey.
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