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Hedge Funds Aren’t Crazy About PepsiCo, Inc. (PEP) Anymore

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 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. Stocks kept going up since then. In this article we look at how hedge funds traded PepsiCo, Inc. (NASDAQ:PEP) and determine whether the smart money was really smart about this stock.

Is PepsiCo, Inc. (NASDAQ:PEP) the right investment to pursue these days? The smart money was turning less bullish. The number of long hedge fund positions were trimmed by 4 lately. PepsiCo, Inc. (NASDAQ:PEP) was in 53 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 65. Our calculations also showed that PEP 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). There were 57 hedge funds in our database with PEP positions at the end of the first quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Donald Yacktman of Yacktman Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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 read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. Now let’s view the new hedge fund action encompassing PepsiCo, Inc. (NASDAQ:PEP).

How are hedge funds trading PepsiCo, Inc. (NASDAQ:PEP)?

At Q2’s end, a total of 53 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the previous quarter. On the other hand, there were a total of 55 hedge funds with a bullish position in PEP 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, AQR Capital Management was the largest shareholder of PepsiCo, Inc. (NASDAQ:PEP), with a stake worth $530.4 million reported as of the end of September. Trailing AQR Capital Management was Yacktman Asset Management, which amassed a stake valued at $432.4 million. Diamond Hill Capital, D E Shaw, 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 Kehrs Ridge Capital allocated the biggest weight to PepsiCo, Inc. (NASDAQ:PEP), around 12.38% of its 13F portfolio. Yacktman Asset Management is also relatively very bullish on the stock, dishing out 6.89 percent of its 13F equity portfolio to PEP.

Since PepsiCo, Inc. (NASDAQ:PEP) has faced falling interest from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of money managers that elected to cut their entire stakes heading into Q3. It’s worth mentioning that Ray Dalio’s Bridgewater Associates sold off the biggest stake of the “upper crust” of funds watched by Insider Monkey, valued at close to $4.6 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund cut about $1.9 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 4 funds heading into Q3.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as PepsiCo, Inc. (NASDAQ:PEP) but similarly valued. These stocks are Pfizer Inc. (NYSE:PFE), Comcast Corporation (NASDAQ:CMCSA), Toyota Motor Corporation (NYSE:TM), AbbVie Inc (NYSE:ABBV), Oracle Corporation (NYSE:ORCL), salesforce.com, inc. (NYSE:CRM), and SAP SE (NYSE:SAP). This group of stocks’ market valuations are closest to PEP’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PFE 66 2139163 -1
CMCSA 80 7207135 -3
TM 13 719379 2
ABBV 89 6226917 8
ORCL 49 2312027 1
CRM 107 9769139 -10
SAP 16 1253641 1
Average 60 4232486 -0.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 60 hedge funds with bullish positions and the average amount invested in these stocks was $4232 million. That figure was $3157 million in PEP’s case. salesforce.com, inc. (NYSE:CRM) is the most popular stock in this table. On the other hand Toyota Motor Corporation (NYSE:TM) is the least popular one with only 13 bullish hedge fund positions. PepsiCo, Inc. (NASDAQ:PEP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PEP is 46.7. 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 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 33% in 2020 through the end of August and surpassed the market by 23.2 percentage points. Unfortunately PEP wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); PEP investors were disappointed as the stock returned 5.9% since Q2 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.