Did Hedge Funds Make The Right Call On The Wendy’s Company (WEN) ?

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 The Wendy’s Company (NASDAQ:WEN) and determine whether the smart money was really smart about this stock.

Is The Wendy’s Company (NASDAQ:WEN) worth your attention right now? Hedge funds were turning bullish. The number of long hedge fund positions advanced by 7 recently. Our calculations also showed that WEN 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.

Gabriel Plotkin Melvin Capital Management

Gabriel Plotkin of Melvin Capital Management

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 take a look at the latest hedge fund action regarding The Wendy’s Company (NASDAQ:WEN).

How are hedge funds trading The Wendy’s Company (NASDAQ:WEN)?

At Q1’s end, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from the previous quarter. On the other hand, there were a total of 27 hedge funds with a bullish position in WEN a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Trian Partners was the largest shareholder of The Wendy’s Company (NASDAQ:WEN), with a stake worth $396.3 million reported as of the end of September. Trailing Trian Partners was Melvin Capital Management, which amassed a stake valued at $81.8 million. Citadel Investment Group, Horizon Asset Management, 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 Clearfield Capital allocated the biggest weight to The Wendy’s Company (NASDAQ:WEN), around 7.3% of its 13F portfolio. Trian Partners is also relatively very bullish on the stock, designating 5.71 percent of its 13F equity portfolio to WEN.

As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Melvin Capital Management, managed by Gabriel Plotkin, created the most outsized position in The Wendy’s Company (NASDAQ:WEN). Melvin Capital Management had $81.8 million invested in the company at the end of the quarter. Lee Ainslie’s Maverick Capital also made a $11.8 million investment in the stock during the quarter. The other funds with brand new WEN positions are Kamyar Khajavi’s MIK Capital, Philip Hilal’s Clearfield Capital, and Cristan Blackman’s Empirical Capital Partners.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as The Wendy’s Company (NASDAQ:WEN) but similarly valued. We will take a look at DXC Technology Company (NYSE:DXC), Vedanta Ltd (NYSE:VEDL), Aerojet Rocketdyne Holdings Inc (NYSE:AJRD), and ADT Inc. (NYSE:ADT). This group of stocks’ market caps are closest to WEN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DXC 41 382695 -6
VEDL 11 26697 -2
AJRD 23 422895 2
ADT 20 98631 -1
Average 23.75 232730 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $233 million. That figure was $706 million in WEN’s case. DXC Technology Company (NYSE:DXC) is the most popular stock in this table. On the other hand Vedanta Ltd (NYSE:VEDL) is the least popular one with only 11 bullish hedge fund positions. The Wendy’s Company (NASDAQ:WEN) is not the most popular stock in this group but hedge fund interest is still above 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on WEN as the stock returned 46.7% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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