Hedge Funds Have Never Been More Bullish On KKR & Co Inc. (KKR)

·6 min read

Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow nearly 900 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is KKR & Co Inc. (NYSE:KKR), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

KKR & Co Inc. (NYSE:KKR) shareholders have witnessed an increase in activity from the world's largest hedge funds in recent months. KKR & Co Inc. (NYSE:KKR) was in 56 hedge funds' portfolios at the end of March. The all time high for this statistic is 56. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that KKR isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Jeff Ubben VALUEACT CAPITAL
Jeff Ubben VALUEACT CAPITAL

Jeffrey Ubben of ValueAct Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, advertising technology one of the fastest growing industries right now, so we are checking out stock pitches like this under-the-radar adtech stock that can deliver 10x gains. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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. Keeping this in mind let's analyze the fresh hedge fund action regarding KKR & Co Inc. (NYSE:KKR).

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

At first quarter's end, a total of 56 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from the previous quarter. By comparison, 48 hedge funds held shares or bullish call options in KKR a year ago. With hedgies' sentiment swirling, there exists a few notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

Among these funds, ValueAct Capital held the most valuable stake in KKR & Co Inc. (NYSE:KKR), which was worth $1542.9 million at the end of the fourth quarter. On the second spot was Akre Capital Management which amassed $719.7 million worth of shares. Diamond Hill Capital, Egerton Capital Limited, and Ariel Investments 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 Blacksheep Fund Management allocated the biggest weight to KKR & Co Inc. (NYSE:KKR), around 20.23% of its 13F portfolio. ValueAct Capital is also relatively very bullish on the stock, dishing out 18.01 percent of its 13F equity portfolio to KKR.

Now, some big names were leading the bulls' herd. Balyasny Asset Management, managed by Dmitry Balyasny, created the most outsized position in KKR & Co Inc. (NYSE:KKR). Balyasny Asset Management had $26 million invested in the company at the end of the quarter. Daniel S. Och's OZ Management also initiated a $14.2 million position during the quarter. The other funds with new positions in the stock are Sander Gerber's Hudson Bay Capital Management, D. E. Shaw's D E Shaw, and Benjamin A. Smith's Laurion Capital Management.

Let's go over hedge fund activity in other stocks similar to KKR & Co Inc. (NYSE:KKR). We will take a look at Old Dominion Freight Line, Inc. (NASDAQ:ODFL), Unity Software Inc. (NYSE:U), Ball Corporation (NYSE:BLL), Lennar Corporation (NYSE:LEN), Teladoc Health, Inc (NYSE:TDOC), The Kroger Co. (NYSE:KR), and American Water Works Company, Inc. (NYSE:AWK). This group of stocks' market valuations match KKR's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ODFL,40,865894,-10 U,39,6694278,7 BLL,38,1407192,-6 LEN,49,1570352,-3 TDOC,42,3372133,-8 KR,35,3155231,-1 AWK,30,1109517,-6 Average,39,2596371,-3.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 39 hedge funds with bullish positions and the average amount invested in these stocks was $2596 million. That figure was $4543 million in KKR's case. Lennar Corporation (NYSE:LEN) is the most popular stock in this table. On the other hand American Water Works Company, Inc. (NYSE:AWK) is the least popular one with only 30 bullish hedge fund positions. Compared to these stocks KKR & Co Inc. (NYSE:KKR) is more popular among hedge funds. Our overall hedge fund sentiment score for KKR is 87. 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. 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 returned 17.2% in 2021 through June 11th but still managed to beat the market by 3.3 percentage points. Hedge funds were also right about betting on KKR as the stock returned 16% since the end of March (through 6/11) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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