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Hedge Funds’ Five Most Popular Consumer Services Stocks: Amazon.com, Inc. (AMZN), McDonald’s Corporation (MCD), More

The fast-food restaurant chain McDonald’s Corporation (NYSE:MCD) gained popularity among investment managers during the first quarter, with 89 investment firms holding positions in McDonald’s as compared to 75 at the end of 2014. The overall value of their investments was also up by 32.6% to $6.83 billion. McDonald’s Corporation (NYSE:MCD) is working on a turnaround plan that will focus on strategic changes to its menu and adding more options for a higher price tag. For instance, the McChicken sandwich with tomato and leaf lettuce is a new option, which is likely to cost $1.50 against the earlier sandwiches which were sold in the $1.20 to $1.39 range. The company is planning some new drinks for the summer season as well. Additionally, customers should expect a smaller menu available through McDonald’s Corporation (NYSE:MCD)’s drive-thrus, with expectations that a smaller menu will help the company boost its operational efficiency. The fast-food restaurant chain has attracted investments from the likes of Mason Hawkins‘ Southeastern Asset Management and Highfields Capital Management.

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Mason Hawkins
Southeastern Asset Management

Time Warner Cable Inc (NYSE:TWC) is another popular consumer services stock among the investment firms that we track. With 83 investors holding an aggregate investment of $10.18 billion, Time Warner Cable has seen a slight increase in popularity from the 82 investors holding $9.08 billion of the company’s stock at the end of 2014. The shares of Time Warner Cable Inc (NYSE:TWC) traded 7.23% higher for the day on Tuesday at $183.60, after its acquisition by Charter Communications, Inc. (NASDAQ:CHTR) was announced. Charter Communications will attempt to acquire Time Warner Cable Inc for $56 billion, with its offer including $195.71 in cash and stock against every share of Time Warner Cable Inc (NYSE:TWC). If the Federal Communications Commission approves this deal, the combined company would control 20% of the U.S broadband market. Childrens Investment Fund and John Paulson‘s Paulson & Co are among some of the major stockholders of Time Warner Cable Inc.

Insider Monkey tracks hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically delivered a monthly alpha of six basis points, though these stocks underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. These stocks were able to generate alpha because of their lower risk profile. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month. These stocks were slightly riskier, so their monthly alpha was 80 basis points (read the details here). Since the official launch of our small-cap strategy in August 2012 it has performed just as predicted, returning over 144% and beating the market by more than 84 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise rather than large-cap stocks.

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