We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Restaurant Brands International Inc (NYSE:QSR) and determine whether hedge funds skillfully traded this stock.
Is Restaurant Brands International Inc (NYSE:QSR) a splendid investment today? Prominent investors were in a bullish mood. The number of long hedge fund positions increased by 3 in recent months. Restaurant Brands International Inc (NYSE:QSR) was in 44 hedge funds’ portfolios at the end of June. The all time high for this statistics is 59. Our calculations also showed that QSR 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 56 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
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. With all of this in mind let’s take a gander at the latest hedge fund action surrounding Restaurant Brands International Inc (NYSE:QSR).
Hedge fund activity in Restaurant Brands International Inc (NYSE:QSR)
Heading into the third quarter of 2020, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards QSR over the last 20 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Bill Ackman’s Pershing Square has the number one position in Restaurant Brands International Inc (NYSE:QSR), worth close to $1.3723 billion, accounting for 17.7% of its total 13F portfolio. On Pershing Square’s heels is Pelham Capital, led by Ross Turner, holding a $241.5 million position; the fund has 25.2% of its 13F portfolio invested in the stock. Remaining peers with similar optimism contain D. E. Shaw’s D E Shaw, Brett Barakett’s Tremblant Capital and Ricky Sandler’s Eminence Capital. In terms of the portfolio weights assigned to each position Pelham Capital allocated the biggest weight to Restaurant Brands International Inc (NYSE:QSR), around 25.19% of its 13F portfolio. Pershing Square is also relatively very bullish on the stock, dishing out 17.7 percent of its 13F equity portfolio to QSR.
As industrywide interest jumped, key hedge funds have jumped into Restaurant Brands International Inc (NYSE:QSR) headfirst. Pelham Capital, managed by Ross Turner, assembled the largest position in Restaurant Brands International Inc (NYSE:QSR). Pelham Capital had $241.5 million invested in the company at the end of the quarter. David Thomas’s Atalan Capital also initiated a $91.5 million position during the quarter. The other funds with brand new QSR positions are David Cohen and Harold Levy’s Iridian Asset Management, Alexander Mitchell’s Scopus Asset Management, and Dmitry Balyasny’s Balyasny Asset Management.
Let’s now review hedge fund activity in other stocks similar to Restaurant Brands International Inc (NYSE:QSR). We will take a look at Yandex NV (NASDAQ:YNDX), Peloton Interactive, Inc. (NASDAQ:PTON), CGI Inc. (NYSE:GIB), Fox Corporation (NASDAQ:FOX), Fox Corporation (NASDAQ:FOXA), Maxim Integrated Products Inc. (NASDAQ:MXIM), and Laboratory Corp. of America Holdings (NYSE:LH). This group of stocks’ market caps are closest to QSR’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.1 hedge funds with bullish positions and the average amount invested in these stocks was $1122 million. That figure was $2868 million in QSR’s case. Laboratory Corp. of America Holdings (NYSE:LH) is the most popular stock in this table. On the other hand CGI Inc. (NYSE:GIB) is the least popular one with only 19 bullish hedge fund positions. Restaurant Brands International Inc (NYSE:QSR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for QSR is 68.3. 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 positive signal but 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 beat the market by 23.2 percentage points. Unfortunately QSR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on QSR were disappointed as the stock returned -0.9% during the same time period 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 many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.