Hedge Funds Dropped The Ball On Coca-Cola Company (KO)

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published this article and predicted that US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. 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. Insider Monkey finished processing 835 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of December 31st, 2019. What do these smart investors think about The Coca-Cola Company (NYSE:KO)?

Is The Coca-Cola Company (NYSE:KO) the right pick for your portfolio? The smart money is becoming less confident. The number of long hedge fund bets went down by 5 even before the coronavirus threat emerged. Our calculations also showed that KO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). KO was in 51 hedge funds’ portfolios at the end of December. There were 56 hedge funds in our database with KO holdings at the end of the previous quarter.

Video: Click the image to 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 41 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.

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now we’re going to take a look at the key hedge fund action surrounding The Coca-Cola Company (NYSE:KO).

Hedge fund activity in The Coca-Cola Company (NYSE:KO)

At Q4’s end, a total of 51 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in KO over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Berkshire Hathaway, managed by Warren Buffett, holds the biggest position in The Coca-Cola Company (NYSE:KO). Berkshire Hathaway has a $22.14 billion position in the stock, comprising 9.1% of its 13F portfolio. The second most bullish fund manager is Yacktman Asset Management, led by Donald Yacktman, holding a $521.1 million position; 6.6% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors with similar optimism contain Phill Gross and Robert Atchinson’s Adage Capital Management, Ken Griffin’s Citadel Investment Group and Panayotis Takis Sparaggis’s Alkeon Capital Management. In terms of the portfolio weights assigned to each position Berkshire Hathaway allocated the biggest weight to The Coca-Cola Company (NYSE:KO), around 9.15% of its 13F portfolio. Yacktman Asset Management is also relatively very bullish on the stock, earmarking 6.59 percent of its 13F equity portfolio to KO.

Since The Coca-Cola Company (NYSE:KO) has experienced a decline in interest from the aggregate hedge fund industry, it’s safe to say that there exists a select few funds who were dropping their positions entirely in the third quarter. Intriguingly, Rajiv Jain’s GQG Partners said goodbye to the largest position of all the hedgies watched by Insider Monkey, valued at an estimated $216.3 million in stock, and Anand Parekh’s Alyeska Investment Group was right behind this move, as the fund dumped about $35.2 million worth. These transactions are interesting, as total hedge fund interest dropped by 5 funds in the third quarter.

Let’s go over hedge fund activity in other stocks similar to The Coca-Cola Company (NYSE:KO). These stocks are Merck & Co., Inc. (NYSE:MRK), Chevron Corporation (NYSE:CVX), Wells Fargo & Company (NYSE:WFC), and Pfizer Inc. (NYSE:PFE). All of these stocks’ market caps match KO’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 66.25 hedge funds with bullish positions and the average amount invested in these stocks was $9068 million. That figure was $23797 million in KO’s case. Wells Fargo & Company (NYSE:WFC) is the most popular stock in this table. On the other hand Chevron Corporation (NYSE:CVX) is the least popular one with only 47 bullish hedge fund positions. The Coca-Cola Company (NYSE:KO) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th but still beat the market by 1.9 percentage points. A small percentage of hedge funds were also right about betting on KO as the stock returned -6.3% during the same time period and outperformed the market by an even larger margin.

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