Do Hedge Funds Love Yum! Brands, Inc. (YUM)?

In this article we are going to use hedge fund sentiment as a tool and determine whether Yum! Brands, Inc. (NYSE:YUM) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is Yum! Brands, Inc. (NYSE:YUM) going to take off soon? The smart money was selling. The number of long hedge fund positions fell by 1 in recent months. Yum! Brands, Inc. (NYSE:YUM) was in 32 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 65. Our calculations also showed that YUM isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we’re going to check out the key hedge fund action regarding Yum! Brands, Inc. (NYSE:YUM).

Do Hedge Funds Think YUM Is A Good Stock To Buy Now?

At the end of the first quarter, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from the previous quarter. By comparison, 41 hedge funds held shares or bullish call options in YUM a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Alkeon Capital Management held the most valuable stake in Yum! Brands, Inc. (NYSE:YUM), which was worth $250.1 million at the end of the fourth quarter. On the second spot was Arrowstreet Capital which amassed $128.1 million worth of shares. D E Shaw, Senator Investment Group, and Citadel Investment Group 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 0 allocated the biggest weight to Yum! Brands, Inc. (NYSE:YUM), around 8.95% of its 13F portfolio. 0 is also relatively very bullish on the stock, setting aside 1.11 percent of its 13F equity portfolio to YUM.

Because Yum! Brands, Inc. (NYSE:YUM) has witnessed falling interest from the aggregate hedge fund industry, it’s easy to see that there is a sect of hedge funds who sold off their full holdings heading into Q2. Interestingly, Eric W. Mandelblatt and Gaurav Kapadia’s Soroban Capital Partners dumped the biggest stake of the “upper crust” of funds followed by Insider Monkey, comprising close to $473.2 million in stock, and Anand Parekh’s Alyeska Investment Group was right behind this move, as the fund said goodbye to about $4.4 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 1 funds heading into Q2.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Yum! Brands, Inc. (NYSE:YUM) but similarly valued. These stocks are Stanley Black & Decker, Inc. (NYSE:SWK), D.R. Horton, Inc. (NYSE:DHI), CoStar Group Inc (NASDAQ:CSGP), TAL Education Group (NYSE:TAL), PACCAR Inc (NASDAQ:PCAR), TransDigm Group Incorporated (NYSE:TDG), and Brown-Forman Corporation (NYSE:BF). This group of stocks’ market valuations are similar to YUM’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SWK 33 993045 -5
DHI 50 2174422 -14
CSGP 43 2784728 -8
TAL 38 1373412 9
PCAR 28 626282 -6
TDG 62 6290864 -2
BF 35 1477271 6
Average 41.3 2245718 -2.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 41.3 hedge funds with bullish positions and the average amount invested in these stocks was $2246 million. That figure was $751 million in YUM’s case. TransDigm Group Incorporated (NYSE:TDG) is the most popular stock in this table. On the other hand PACCAR Inc (NASDAQ:PCAR) is the least popular one with only 28 bullish hedge fund positions. Yum! Brands, Inc. (NYSE:YUM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for YUM is 24.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 22.8% in 2021 through July 2nd and surpassed the market again by 6 percentage points. Unfortunately YUM wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); YUM investors were disappointed as the stock returned 8.6% since the end of March (through 7/2) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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