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Did Hedge Funds Make The Right Call On Keurig Dr Pepper Inc. (KDP) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Keurig Dr Pepper Inc. (NYSE:KDP) based on that data and determine whether they were really smart about the stock.

Keurig Dr Pepper Inc. (NYSE:KDP) investors should pay attention to an increase in hedge fund sentiment of late. KDP was in 30 hedge funds’ portfolios at the end of March. There were 26 hedge funds in our database with KDP holdings at the end of the previous quarter. Our calculations also showed that KDP 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.

To most market participants, hedge funds are assumed to be underperforming, outdated investment vehicles of years past. While there are over 8000 funds with their doors open at present, We look at the top tier of this club, around 850 funds. These investment experts have their hands on the majority of the hedge fund industry’s total asset base, and by tailing their first-class stock picks, Insider Monkey has unearthed many investment strategies that have historically surpassed the market. Insider Monkey’s flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Now we’re going to check out the key hedge fund action encompassing Keurig Dr Pepper Inc. (NYSE:KDP).

How are hedge funds trading Keurig Dr Pepper Inc. (NYSE:KDP)?

At the end of the first quarter, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in KDP over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Cedar Rock Capital held the most valuable stake in Keurig Dr Pepper Inc. (NYSE:KDP), which was worth $220.2 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $82.3 million worth of shares. Arrowstreet Capital, D E Shaw, and Candlestick Capital Management 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 Cedar Rock Capital allocated the biggest weight to Keurig Dr Pepper Inc. (NYSE:KDP), around 5.89% of its 13F portfolio. Pinz Capital is also relatively very bullish on the stock, designating 5.39 percent of its 13F equity portfolio to KDP.

As one would reasonably expect, key hedge funds were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the most outsized position in Keurig Dr Pepper Inc. (NYSE:KDP). Arrowstreet Capital had $80.6 million invested in the company at the end of the quarter. Simon Sadler’s Segantii Capital also initiated a $17.2 million position during the quarter. The other funds with new positions in the stock are Steve Cohen’s Point72 Asset Management, Brett Barakett’s Tremblant Capital, and Matthew L Pinz’s Pinz Capital.

Let’s now take a look at hedge fund activity in other stocks similar to Keurig Dr Pepper Inc. (NYSE:KDP). We will take a look at Atlassian Corporation Plc (NASDAQ:TEAM), Thomson Reuters Corporation (NYSE:TRI), UBS Group AG (NYSE:UBS), and ConocoPhillips (NYSE:COP). This group of stocks’ market valuations resemble KDP’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TEAM 59 2586287 -3
TRI 22 330343 1
UBS 15 211262 1
COP 54 961915 -8
Average 37.5 1022452 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 37.5 hedge funds with bullish positions and the average amount invested in these stocks was $1022 million. That figure was $565 million in KDP’s case. Atlassian Corporation Plc (NASDAQ:TEAM) is the most popular stock in this table. On the other hand UBS Group AG (NYSE:UBS) is the least popular one with only 15 bullish hedge fund positions. Keurig Dr Pepper Inc. (NYSE:KDP) 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 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately KDP wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); KDP investors were disappointed as the stock returned 17.8% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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