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Did Hedge Funds Make The Right Call On McCormick & Company, Incorporated (MKC) ?

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 McCormick & Company, Incorporated (NYSE:MKC) and determine whether the smart money was really smart about this stock.

McCormick & Company, Incorporated (NYSE:MKC) has seen an increase in hedge fund interest in recent months. MKC was in 31 hedge funds’ portfolios at the end of March. There were 24 hedge funds in our database with MKC positions at the end of the previous quarter. Our calculations also showed that MKC 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.

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’ 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 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.

Lee Ainslie MAVERICK CAPITAL

Lee Ainslie of Maverick 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. With all of this in mind we’re going to take a look at the latest hedge fund action surrounding McCormick & Company, Incorporated (NYSE:MKC).

What does smart money think about McCormick & Company, Incorporated (NYSE:MKC)?

Heading into the second quarter of 2020, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of 29% from the previous quarter. By comparison, 24 hedge funds held shares or bullish call options in MKC a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is MKC A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, holds the largest position in McCormick & Company, Incorporated (NYSE:MKC). Renaissance Technologies has a $94.9 million position in the stock, comprising 0.1% of its 13F portfolio. On Renaissance Technologies’s heels is AQR Capital Management, led by Cliff Asness, holding a $49.3 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other peers that are bullish contain John Overdeck and David Siegel’s Two Sigma Advisors, D. E. Shaw’s D E Shaw and Phill Gross and Robert Atchinson’s Adage Capital Management. In terms of the portfolio weights assigned to each position Cognios Capital allocated the biggest weight to McCormick & Company, Incorporated (NYSE:MKC), around 0.89% of its 13F portfolio. Quantamental Technologies is also relatively very bullish on the stock, earmarking 0.82 percent of its 13F equity portfolio to MKC.

Now, key hedge funds have been driving this bullishness. Renaissance Technologies, created the most outsized position in McCormick & Company, Incorporated (NYSE:MKC). Renaissance Technologies had $94.9 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also initiated a $28.3 million position during the quarter. The following funds were also among the new MKC investors: Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Robert Joseph Caruso’s Select Equity Group, and Joseph Samuels’s Islet Management.

Let’s go over hedge fund activity in other stocks similar to McCormick & Company, Incorporated (NYSE:MKC). We will take a look at Schlumberger Limited. (NYSE:SLB), Match Group, Inc. (NASDAQ:MTCH), Fortive Corporation (NYSE:FTV), and Cadence Design Systems Inc (NASDAQ:CDNS). This group of stocks’ market valuations resemble MKC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SLB 49 641144 2
MTCH 38 1032869 6
FTV 35 1015089 -8
CDNS 31 1339958 -11
Average 38.25 1007265 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.25 hedge funds with bullish positions and the average amount invested in these stocks was $1007 million. That figure was $281 million in MKC’s case. Schlumberger Limited. (NYSE:SLB) is the most popular stock in this table. On the other hand Cadence Design Systems Inc (NASDAQ:CDNS) is the least popular one with only 31 bullish hedge fund positions. Compared to these stocks McCormick & Company, Incorporated (NYSE:MKC) is even less popular than CDNS. Hedge funds clearly dropped the ball on MKC as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on MKC as the stock returned 27.6% in the second quarter and outperformed the market by an even larger margin.

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