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2019 Review: Most Favored Hedge Fund Stocks vs. The Wendy’s Company (WEN)

It has been a fantastic year for equity investors as Donald Trump pressured Federal Reserve to reduce interest rates and finalized the first leg of a trade deal with China. If you were a passive index fund investor, you had seen gains of 31% in your equity portfolio in 2019. However, if you were an active investor putting your money into hedge funds’ favorite stocks, you had seen gains of more than 41%. In this article we are going to take a look at how hedge funds feel about a stock like The Wendy’s Company (NASDAQ:WEN) and compare its performance against hedge funds’ favorite stocks.

The Wendy’s Company (NASDAQ:WEN) was in 34 hedge funds’ portfolios at the end of the third quarter of 2019. WEN has seen an increase in activity from the world’s largest hedge funds lately. There were 24 hedge funds in our database with WEN holdings at the end of the previous quarter. Our calculations also showed that WEN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

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. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

TRIAN PARTNERS

Nelson Peltz of Trian Partners

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now let’s take a look at the new hedge fund action encompassing The Wendy’s Company (NASDAQ:WEN).

What does smart money think about The Wendy’s Company (NASDAQ:WEN)?

At the end of the third quarter, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 42% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in WEN over the last 17 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

Is WEN A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Trian Partners, managed by Nelson Peltz, holds the number one position in The Wendy’s Company (NASDAQ:WEN). Trian Partners has a $532.1 million position in the stock, comprising 5.6% of its 13F portfolio. The second largest stake is held by Horizon Asset Management, managed by Murray Stahl, which holds a $51.3 million position; the fund has 1.5% of its 13F portfolio invested in the stock. Remaining professional money managers that are bullish comprise Steve Cohen’s Point72 Asset Management, Amy Minella’s Cardinal Capital and Paul Marshall and Ian Wace’s Marshall Wace. In terms of the portfolio weights assigned to each position Trian Partners allocated the biggest weight to The Wendy’s Company (NASDAQ:WEN), around 5.55% of its 13F portfolio. Horizon Asset Management is also relatively very bullish on the stock, dishing out 1.54 percent of its 13F equity portfolio to WEN.

Now, specific money managers were breaking ground themselves. Armistice Capital, managed by Steven Boyd, assembled the biggest position in The Wendy’s Company (NASDAQ:WEN). Armistice Capital had $20 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also initiated a $17.3 million position during the quarter. The following funds were also among the new WEN investors: Lee Ainslie’s Maverick Capital, Philippe Laffont’s Coatue Management, and Anthony Joseph Vaccarino’s North Fourth Asset Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as The Wendy’s Company (NASDAQ:WEN) but similarly valued. These stocks are Bilibili Inc. (NASDAQ:BILI), Grupo Aeroportuario del Sureste (NYSE:ASR), Ascendis Pharma A/S (NASDAQ:ASND), and Intercorp Financial Services Inc. (NYSE:IFS). This group of stocks’ market values resemble WEN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BILI 18 383762 -5
ASR 4 38248 -3
ASND 33 2023367 0
IFS 3 9694 3
Average 14.5 613768 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $614 million. That figure was $893 million in WEN’s case. Ascendis Pharma A/S (NASDAQ:ASND) is the most popular stock in this table. On the other hand Intercorp Financial Services Inc. (NYSE:IFS) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks The Wendy’s Company (NASDAQ:WEN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on WEN as the stock returned 44.1% so far in 2019 (through 12/23) 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.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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