One of our many regular quarterly features at Insider Monkey is to present a series of articles detailing groups of stocks which saw large increases or decreases in the hedge fund ownership of their shares during a period of time. In addition to articles focused on breaking down stocks by market cap or sector, we also do articles that include all stocks and the absolute biggest sentiment shifts among hedge funds. We’ve already covered the five stocks that hedge funds were buying the most during the second quarter, so in this feature we’ll examine five stocks at the opposite end of the sentiment spectrum, the stocks hedge funds most sold out of.
First, let’s take a glance back at the stocks which hedge funds fled during the first quarter and see how they performed during the second quarter. Those stocks were Citizens Financial Group Inc (NYSE:CFG), eBay Inc (NASDAQ:EBAY), EOG Resources Inc (NYSE:EOG), General Motors Company (NYSE:GM), and Sunedison Inc (OTCMKTS:SUNEQ). Only one of those stocks, EOG, posted gains during the second quarter (of 14.94%), while the other four were all down. SunEdison fared the worst, losing 42.47% before trading of the company’s shares was suspended after April 21. All told, the five stocks delivered losses of 8.80% on average during the quarter, so it appears that the hedge fund sentiment was useful in locating stocks poised for underperformance.
With that in mind, let’s take a look at a new list of five stocks that hedge funds were fleeing during the most recent quarter. They are Yahoo! Inc. (NASDAQ:YHOO), McDonald’s Corporation (NYSE:MCD), Pfizer Inc. (NYSE:PFE), Apple Inc. (NASDAQ:AAPL), and Allergan PLC (NYSE:AGN).
Through extensive research that covered the portfolios of several hundred large investors between 1999 and 2012, we determined that following the small-cap stocks that large money managers are collectively bullish on, can generate monthly returns nearly 1.0 percentage points above the market (see the details here).
Yahoo! Inc. (NASDAQ:YHOO)
– Number of Hedge Funds With Long Positions (as of June 30): 81
– Aggregate Value of Hedge Funds’ Holdings (as of June 30): $6.77 billion
First up is Yahoo, the hedge fund ownership of which slid to 81 from 97 quarter-over-quarter among the funds in our database. Brian Taylor’s Pine River Capital, James Dondero’s Highland Capital, and Howard Marks’ Oaktree Capital were among the many hedge funds that sold off their Yahoo positions during the quarter.
It’s somewhat surprising to see the smart money run from Yahoo! Inc. (NASDAQ:YHOO) in the second quarter given its efforts to sell its core business, providing potential value to investors as both an Alibaba Group Holding Ltd (NYSE:BABA) tracking stock of sorts, in addition to the potential benefits of the divestiture of Yahoo’s core business (which ended up being sold to Verizon Communications Inc. (NYSE:VZ) at the end of July). Yahoo’s shares have gained over 13% in the third quarter thanks to a similar run-up in Alibaba’s stock.
McDonald’s Corporation (NYSE:MCD)
– Number of Hedge Funds With Long Positions (as of June 30): 63
– Aggregate Value of Hedge Funds’ Holdings (as of June 30): $3.03 billion
McDonald’s was held in the portfolios of 63 hedge funds in our system on June 30, down from 83 a quarter earlier. A few investors who weren’t “lovin’ it” (it being McDonald’s stock, which they sold off) during the second quarter were Jacob Gottlieb‘s Visium Asset Management, John Burbank’s Passport Capital, and Clint Carlson’s Carlson Capital.
With McDonald’s Corporation (NYSE:MCD) pushing all-time highs, it’s less surprising to see hedge funds grow cautious of the fast-food giant’s valuation. Its trailing P/E has ballooned to 23, from a three-year average of just 17 in the years prior to 2015, and revenue is falling. And while McDonald’s has considerably hiked its dividend in recent years, it’s done so by racking up mounds of debt where there was previously little. On the plus side, McDonald’s Corporation’s profitability should improve in the years to come as it continues the process of refranchising the majority of its restaurants.
Three more stocks that lost loads of smart money support during the second quarter are discussed on the next page.