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 12.1% in the first 5 months of this year through May 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-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' 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 Kaman Corporation (NYSE:KAMN).
Kaman Corporation (NYSE:KAMN) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 12 hedge funds' portfolios at the end of the first quarter of 2019. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Tricida, Inc. (NASDAQ:TCDA), Kronos Worldwide, Inc. (NYSE:KRO), and IAMGOLD Corporation (NYSE:IAG) to gather more data points.
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.
Dmitry Balyasny
We're going to view the fresh hedge fund action regarding Kaman Corporation (NYSE:KAMN).
What have hedge funds been doing with Kaman Corporation (NYSE:KAMN)?
At Q1's end, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards KAMN over the last 15 quarters. With the smart money's sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
KAMN_june2019
Among these funds, GAMCO Investors held the most valuable stake in Kaman Corporation (NYSE:KAMN), which was worth $162 million at the end of the first quarter. On the second spot was Cardinal Capital which amassed $45.9 million worth of shares. Moreover, Citadel Investment Group, Winton Capital Management, and GLG Partners were also bullish on Kaman Corporation (NYSE:KAMN), allocating a large percentage of their portfolios to this stock.
Due to the fact that Kaman Corporation (NYSE:KAMN) has faced falling interest from the entirety of the hedge funds we track, we can see that there were a few money managers who sold off their full holdings last quarter. It's worth mentioning that John A. Levin's Levin Capital Strategies cut the largest position of the "upper crust" of funds monitored by Insider Monkey, worth about $30.6 million in stock, and Benjamin A. Smith's Laurion Capital Management was right behind this move, as the fund dumped about $0.2 million worth. These moves are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks similar to Kaman Corporation (NYSE:KAMN). We will take a look at Tricida, Inc. (NASDAQ:TCDA), Kronos Worldwide, Inc. (NYSE:KRO), IAMGOLD Corporation (NYSE:IAG), and Arco Platform Limited (NASDAQ:ARCE). All of these stocks' market caps match KAMN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TCDA,14,682740,1 KRO,13,44485,-1 IAG,13,148633,-1 ARCE,11,40688,1 Average,12.75,229137,0 [/table]
As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $229 million. That figure was $224 million in KAMN's case. Tricida, Inc. (NASDAQ:TCDA) is the most popular stock in this table. On the other hand Arco Platform Limited (NASDAQ:ARCE) is the least popular one with only 11 bullish hedge fund positions. Kaman Corporation (NYSE:KAMN) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately KAMN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); KAMN investors were disappointed as the stock returned 3.3% during the same time period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
Related Content
How to Best Use Insider Monkey To Increase Your Returns
Billionaire Ken Fisher’s Top Dividend Stock Picks
30 Stocks Billionaires Are Crazy About: Insider Monkey Billionaire Stock Index
