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Is QuantumScape Corporation (QS) Going to Burn These Hedge Funds?

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The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the second quarter, which unveil their equity positions as of June 30th. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards QuantumScape Corporation (NYSE:QS).

QuantumScape Corporation (NYSE:QS) was in 26 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 35. QS has experienced a decrease in activity from the world's largest hedge funds in recent months. There were 29 hedge funds in our database with QS positions at the end of the first quarter. Our calculations also showed that QS isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.


Philippe Laffont of Coatue Management

Now let's go over the recent hedge fund action regarding QuantumScape Corporation (NYSE:QS).

Do Hedge Funds Think QS Is A Good Stock To Buy Now?

At Q2's end, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in QS over the last 24 quarters. With the smart money's sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, JS Capital, managed by Jonathan Soros, holds the most valuable position in QuantumScape Corporation (NYSE:QS). JS Capital has a $67.2 million position in the stock, comprising 3.2% of its 13F portfolio. The second largest stake is held by George Soros of Soros Fund Management, with a $47.1 million position; 0.8% of its 13F portfolio is allocated to the company. Other members of the smart money with similar optimism include Tony Davis's Inherent Group, and Philippe Laffont's Coatue Management. In terms of the portfolio weights assigned to each position Corriente Advisors allocated the biggest weight to QuantumScape Corporation (NYSE:QS), around 5.32% of its 13F portfolio. JS Capital is also relatively very bullish on the stock, setting aside 3.25 percent of its 13F equity portfolio to QS.

Because QuantumScape Corporation (NYSE:QS) has experienced a decline in interest from the entirety of the hedge funds we track, we can see that there lies a certain "tier" of hedge funds who were dropping their positions entirely last quarter. Interestingly, Joseph Samuels's Islet Management dropped the largest investment of the 750 funds monitored by Insider Monkey, valued at about $35.7 million in stock. Benjamin A. Smith's fund, Laurion Capital Management, also cut its stock, about $8 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 3 funds last quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as QuantumScape Corporation (NYSE:QS) but similarly valued. We will take a look at Dropbox, Inc. (NASDAQ:DBX), Medical Properties Trust, Inc. (NYSE:MPW), Lamb Weston Holdings, Inc. (NYSE:LW), Chegg Inc (NYSE:CHGG), Trex Company, Inc. (NYSE:TREX), Grifols SA (NASDAQ:GRFS), and The Toro Company (NYSE:TTC). All of these stocks' market caps resemble QS's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DBX,39,929444,8 MPW,19,266856,-4 LW,36,692976,-2 CHGG,38,667256,5 TREX,25,206431,2 GRFS,14,283634,2 TTC,32,976252,0 Average,29,574693,1.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $575 million. That figure was $321 million in QS's case. Dropbox, Inc. (NASDAQ:DBX) is the most popular stock in this table. On the other hand Grifols SA (NASDAQ:GRFS) is the least popular one with only 14 bullish hedge fund positions. QuantumScape Corporation (NYSE:QS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for QS is 48.3. 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15th and surpassed the market again by 4.5 percentage points. Unfortunately QS wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); QS investors were disappointed as the stock returned -17.6% since the end of June (through 10/15) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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