Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding The Kroger Co. (NYSE:KR).
The Kroger Co. (NYSE:KR) has experienced an increase in hedge fund interest of late. KR was in 31 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 30 hedge funds in our database with KR positions at the end of the previous quarter. Our calculations also showed that KR isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
To most traders, hedge funds are seen as worthless, outdated financial tools of years past. While there are greater than 8000 funds with their doors open today, We choose to focus on the masters of this group, approximately 850 funds. It is estimated that this group of investors orchestrate most of the hedge fund industry's total capital, and by shadowing their unrivaled picks, Insider Monkey has uncovered a number of investment strategies that have historically outperformed Mr. Market. Insider Monkey's flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_332520" align="aligncenter" width="400"] Warren Buffett of Berkshire Hathaway[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind we're going to view the latest hedge fund action regarding The Kroger Co. (NYSE:KR).
What does smart money think about The Kroger Co. (NYSE:KR)?
At Q4's end, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 3% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards KR over the last 18 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
More specifically, Berkshire Hathaway was the largest shareholder of The Kroger Co. (NYSE:KR), with a stake worth $549.1 million reported as of the end of September. Trailing Berkshire Hathaway was AQR Capital Management, which amassed a stake valued at $286 million. Renaissance Technologies, Balyasny Asset Management, and D E Shaw were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Game Creek Capital allocated the biggest weight to The Kroger Co. (NYSE:KR), around 5.71% of its 13F portfolio. 683 Capital Partners is also relatively very bullish on the stock, setting aside 1.66 percent of its 13F equity portfolio to KR.
As one would reasonably expect, specific money managers have been driving this bullishness. Berkshire Hathaway, managed by Warren Buffett, created the largest position in The Kroger Co. (NYSE:KR). Berkshire Hathaway had $549.1 million invested in the company at the end of the quarter. Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors also initiated a $6.4 million position during the quarter. The following funds were also among the new KR investors: David Harding's Winton Capital Management, Lee Ainslie's Maverick Capital, and Michael Gelband's ExodusPoint Capital.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as The Kroger Co. (NYSE:KR) but similarly valued. These stocks are Cerner Corporation (NASDAQ:CERN), Fiat Chrysler Automobiles NV (NYSE:FCAU), Match Group, Inc. (NASDAQ:MTCH), and Twenty-First Century Fox Inc (NASDAQ:FOXA). This group of stocks' market caps resemble KR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CERN,34,1122502,-4 FCAU,23,970651,-5 MTCH,32,1073084,-12 FOXA,37,2451723,-14 Average,31.5,1404490,-8.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.5 hedge funds with bullish positions and the average amount invested in these stocks was $1404 million. That figure was $1356 million in KR's case. Twenty-First Century Fox Inc (NASDAQ:FOXA) is the most popular stock in this table. On the other hand Fiat Chrysler Automobiles NV (NYSE:FCAU) is the least popular one with only 23 bullish hedge fund positions. The Kroger Co. (NYSE:KR) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but still beat the market by 3.1 percentage points. A small number of hedge funds were also right about betting on KR as the stock returned 6.1% during the same time period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.