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Hedge Funds Are Ditching McDonald’s Corporation (MCD)

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 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 June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought McDonald’s Corporation (NYSE:MCD) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Is McDonald’s Corporation (NYSE:MCD) a great stock to buy now? Prominent investors were in a pessimistic mood. The number of long hedge fund positions were cut by 9 in recent months. McDonald’s Corporation (NYSE:MCD) was in 57 hedge funds’ portfolios at the end of June. The all time high for this statistics is 84. Our calculations also showed that MCD isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

In the eyes of most traders, hedge funds are viewed as underperforming, outdated investment vehicles of years past. While there are over 8000 funds trading at the moment, We choose to focus on the elite of this group, around 850 funds. These investment experts shepherd the lion’s share of all hedge funds’ total capital, and by observing their first-class stock picks, Insider Monkey has determined a number of investment strategies that have historically outperformed the broader indices. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s take a gander at the fresh hedge fund action regarding McDonald’s Corporation (NYSE:MCD).

How are hedge funds trading McDonald’s Corporation (NYSE:MCD)?

At the end of June, a total of 57 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from one quarter earlier. By comparison, 52 hedge funds held shares or bullish call options in MCD a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

Is MCD A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Citadel Investment Group, managed by Ken Griffin, holds the largest position in McDonald’s Corporation (NYSE:MCD). Citadel Investment Group has a $205.7 million call position in the stock, comprising 0.1% of its 13F portfolio. The second most bullish fund manager is D. E. Shaw of D E Shaw, with a $205.5 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism consist of Cliff Asness’s AQR Capital Management, Phill Gross and Robert Atchinson’s Adage Capital Management and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Leonard Green & Partners allocated the biggest weight to McDonald’s Corporation (NYSE:MCD), around 6.88% of its 13F portfolio. Beech Hill Partners is also relatively very bullish on the stock, designating 2.03 percent of its 13F equity portfolio to MCD.

Judging by the fact that McDonald’s Corporation (NYSE:MCD) has faced a decline in interest from hedge fund managers, it’s safe to say that there exists a select few money managers that slashed their full holdings last quarter. It’s worth mentioning that Renaissance Technologies cut the biggest investment of all the hedgies watched by Insider Monkey, comprising an estimated $74.1 million in stock, and Gregg Moskowitz’s Interval Partners was right behind this move, as the fund dumped about $25.6 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 9 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to McDonald’s Corporation (NYSE:MCD). These stocks are Accenture Plc (NYSE:ACN), Costco Wholesale Corporation (NASDAQ:COST), Bristol Myers Squibb Company (NYSE:BMY), T-Mobile US, Inc. (NYSE:TMUS), Sanofi (NYSE:SNY), Broadcom Inc (NASDAQ:AVGO), and BHP Group (NYSE:BHP). This group of stocks’ market caps resemble MCD’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ACN 44 1080127 -5
COST 61 4730681 -7
BMY 136 6605597 10
TMUS 113 7158311 48
SNY 24 1220415 9
AVGO 59 2378523 9
BHP 16 761158 -2
Average 64.7 3419259 8.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 64.7 hedge funds with bullish positions and the average amount invested in these stocks was $3419 million. That figure was $1357 million in MCD’s case. Bristol Myers Squibb Company (NYSE:BMY) is the most popular stock in this table. On the other hand BHP Group (NYSE:BHP) is the least popular one with only 16 bullish hedge fund positions. McDonald’s Corporation (NYSE:MCD) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MCD is 33.4. 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. 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 28.2% in 2020 through August 24th and still beat the market by 20.6 percentage points. A small number of hedge funds were also right about betting on MCD as the stock returned 15.3% since the end of June and outperformed the market by an even larger margin.

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