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Were Hedge Funds Right About Dumping Kronos Worldwide, Inc. (KRO)?

Abigail Fisher

A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended June 28, so let’s proceed with the discussion of the hedge fund sentiment on Kronos Worldwide, Inc. (NYSE:KRO).

Is Kronos Worldwide, Inc. (NYSE:KRO) a healthy stock for your portfolio? The best stock pickers are turning less bullish. The number of bullish hedge fund bets retreated by 1 lately. Our calculations also showed that KRO isn't among the 30 most popular stocks among hedge funds (see the video below). KRO was in 12 hedge funds' portfolios at the end of June. There were 13 hedge funds in our database with KRO holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

KRO_oct2019

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. Let's review the latest hedge fund action surrounding Kronos Worldwide, Inc. (NYSE:KRO).

How are hedge funds trading Kronos Worldwide, Inc. (NYSE:KRO)?

At Q2's end, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in KRO over the last 16 quarters. With the smart money's sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Roger Ibbotson Zebra Capital

The largest stake in Kronos Worldwide, Inc. (NYSE:KRO) was held by Renaissance Technologies, which reported holding $21 million worth of stock at the end of March. It was followed by Citadel Investment Group with a $2.8 million position. Other investors bullish on the company included Millennium Management, Zebra Capital Management, and Two Sigma Advisors.

Due to the fact that Kronos Worldwide, Inc. (NYSE:KRO) has faced bearish sentiment from hedge fund managers, we can see that there was a specific group of fund managers that elected to cut their full holdings heading into Q3. Interestingly, Steve Cohen's Point72 Asset Management dropped the largest stake of the 750 funds watched by Insider Monkey, valued at close to $7.6 million in stock. Peter Rathjens, Bruce Clarke and John Campbell's fund, Arrowstreet Capital, also cut its stock, about $6.1 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 1 funds heading into Q3.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Kronos Worldwide, Inc. (NYSE:KRO) but similarly valued. These stocks are Zuora, Inc. (NYSE:ZUO), Magellan Health Inc (NASDAQ:MGLN), Pacira BioSciences, Inc. (NASDAQ:PCRX), and Avon Products, Inc. (NYSE:AVP). This group of stocks' market valuations resemble KRO's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ZUO,19,190779,-2 MGLN,19,379621,-2 PCRX,28,582687,1 AVP,18,310922,-4 Average,21,366002,-1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $366 million. That figure was $31 million in KRO's case. Pacira BioSciences, Inc. (NASDAQ:PCRX) is the most popular stock in this table. On the other hand Avon Products, Inc. (NYSE:AVP) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Kronos Worldwide, Inc. (NYSE:KRO) is even less popular than AVP. Hedge funds dodged a bullet by taking a bearish stance towards KRO. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately KRO wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); KRO investors were disappointed as the stock returned -17.9% 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 so far in 2019.

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

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