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 at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Kelly Services, Inc. (NASDAQ:KELYA) and determine whether the smart money was really smart about this stock.
Kelly Services, Inc. (NASDAQ:KELYA) has experienced an increase in hedge fund sentiment in recent months. KELYA was in 13 hedge funds' portfolios at the end of March. There were 12 hedge funds in our database with KELYA positions at the end of the previous quarter. Our calculations also showed that KELYA isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
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 58 percentage points since March 2017 (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 stocks that are in our short portfolio.
[caption id="attachment_758429" align="aligncenter" width="395"] Ric Dillon of Diamond Hill Capital[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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 let's take a glance at the key hedge fund action encompassing Kelly Services, Inc. (NASDAQ:KELYA).
Hedge fund activity in Kelly Services, Inc. (NASDAQ:KELYA)
At the end of the first quarter, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from one quarter earlier. By comparison, 13 hedge funds held shares or bullish call options in KELYA a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, AQR Capital Management held the most valuable stake in Kelly Services, Inc. (NASDAQ:KELYA), which was worth $3.6 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $2.6 million worth of shares. Diamond Hill Capital, Citadel Investment Group, and Two Sigma Advisors 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 Zebra Capital Management allocated the biggest weight to Kelly Services, Inc. (NASDAQ:KELYA), around 0.64% of its 13F portfolio. Invenomic Capital Management is also relatively very bullish on the stock, dishing out 0.37 percent of its 13F equity portfolio to KELYA.
Consequently, key money managers were leading the bulls' herd. Renaissance Technologies, assembled the biggest position in Kelly Services, Inc. (NASDAQ:KELYA). Renaissance Technologies had $0.5 million invested in the company at the end of the quarter. Ali Motamed's Invenomic Capital Management also made a $0.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Greg Eisner's Engineers Gate Manager, Paul Marshall and Ian Wace's Marshall Wace LLP, and Chuck Royce's Royce & Associates.
Let's now take a look at hedge fund activity in other stocks similar to Kelly Services, Inc. (NASDAQ:KELYA). These stocks are Thermon Group Holdings, Inc. (NYSE:THR), Atara Biotherapeutics Inc (NASDAQ:ATRA), MeiraGTx Holdings plc (NASDAQ:MGTX), and ANI Pharmaceuticals Inc (NASDAQ:ANIP). All of these stocks' market caps resemble KELYA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position THR,11,24611,-3 ATRA,17,220066,1 MGTX,17,170760,-4 ANIP,12,47914,-1 Average,14.25,115838,-1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $116 million. That figure was $14 million in KELYA's case. Atara Biotherapeutics Inc (NASDAQ:ATRA) is the most popular stock in this table. On the other hand Thermon Group Holdings, Inc. (NYSE:THR) is the least popular one with only 11 bullish hedge fund positions. Kelly Services, Inc. (NASDAQ:KELYA) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th but beat the market by 16.8 percentage points. A small number of hedge funds were also right about betting on KELYA, though not to the same extent, as the stock returned 19.9% during the second quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
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