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Were Hedge Funds Right About Kennedy-Wilson Holdings Inc (KW)?

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The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 866 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their March 31st holdings, data that is available nowhere else. Should you consider Kennedy-Wilson Holdings Inc (NYSE:KW) for your portfolio? We'll look to this invaluable collective wisdom for the answer.

Hedge fund interest in Kennedy-Wilson Holdings Inc (NYSE:KW) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that KW isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). At the end of this article we will also compare KW to other stocks including MorphoSys AG (NASDAQ:MOR), Overstock.com, Inc. (NASDAQ:OSTK), and National Storage Affiliates Trust (NYSE:NSA) to get a better sense of its popularity.

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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.

Prem Watsa of Fairfax Financial Holdings

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now let's take a glance at the fresh hedge fund action surrounding Kennedy-Wilson Holdings Inc (NYSE:KW).

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

At the end of the first quarter, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in KW over the last 23 quarters. With the smart money's sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Fairfax Financial Holdings, managed by Prem Watsa, holds the largest position in Kennedy-Wilson Holdings Inc (NYSE:KW). Fairfax Financial Holdings has a $269.5 million position in the stock, comprising 9.4% of its 13F portfolio. On Fairfax Financial Holdings's heels is Chuck Royce of Royce & Associates, with a $108.2 million position; the fund has 0.7% of its 13F portfolio invested in the stock. Some other peers that hold long positions include Alan S. Parsow's Elkhorn Partners, Eric Sprott's Sprott Asset Management and Jacob Doft's Highline Capital Management. In terms of the portfolio weights assigned to each position Elkhorn Partners allocated the biggest weight to Kennedy-Wilson Holdings Inc (NYSE:KW), around 52.64% of its 13F portfolio. Fairfax Financial Holdings is also relatively very bullish on the stock, setting aside 9.4 percent of its 13F equity portfolio to KW.

Because Kennedy-Wilson Holdings Inc (NYSE:KW) has witnessed a decline in interest from the aggregate hedge fund industry, logic holds that there exists a select few hedge funds that slashed their full holdings in the first quarter. Intriguingly, Stuart J. Zimmer's Zimmer Partners said goodbye to the biggest stake of the "upper crust" of funds watched by Insider Monkey, valued at an estimated $11 million in stock. D. E. Shaw's fund, D E Shaw, also dropped its stock, about $0.4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Kennedy-Wilson Holdings Inc (NYSE:KW) but similarly valued. These stocks are MorphoSys AG (NASDAQ:MOR), Overstock.com, Inc. (NASDAQ:OSTK), National Storage Affiliates Trust (NYSE:NSA), Dycom Industries, Inc. (NYSE:DY), California Water Service Group (NYSE:CWT), Cornerstone OnDemand, Inc. (NASDAQ:CSOD), and ESCO Technologies Inc. (NYSE:ESE). This group of stocks' market values resemble KW's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MOR,2,4465,-1 OSTK,31,168652,7 NSA,14,103457,-4 DY,19,277404,0 CWT,8,100631,-2 CSOD,28,652188,-6 ESE,8,85089,-5 Average,15.7,198841,-1.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.7 hedge funds with bullish positions and the average amount invested in these stocks was $199 million. That figure was $499 million in KW's case. Overstock.com, Inc. (NASDAQ:OSTK) is the most popular stock in this table. On the other hand MorphoSys AG (NASDAQ:MOR) is the least popular one with only 2 bullish hedge fund positions. Kennedy-Wilson Holdings Inc (NYSE:KW) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for KW is 50. 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 positive signal but 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 28.5% in 2021 through July 23rd and beat the market again by 10.1 percentage points. Unfortunately KW wasn't nearly as popular as these 5 stocks and hedge funds that were betting on KW were disappointed as the stock returned -1.5% since the end of March (through 7/23) 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 many of these stocks already outperformed the market since 2019.

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