Hedge Funds Have Never Been This Bullish On PepsiCo, Inc. (PEP)

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money 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 (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards PepsiCo, Inc. (NYSE:PEP).

PepsiCo, Inc. (NYSE:PEP) was in 66 hedge funds’ portfolios at the end of June. The all time high for this statistic is 65. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. PEP investors should pay attention to an increase in activity from the world’s largest hedge funds in recent months. There were 61 hedge funds in our database with PEP holdings at the end of March. Our calculations also showed that PEP isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. Now we’re going to check out the fresh hedge fund action regarding PepsiCo, Inc. (NYSE:PEP).

Do Hedge Funds Think PEP Is A Good Stock To Buy Now?

At the end of the second quarter, a total of 66 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from one quarter earlier. By comparison, 53 hedge funds held shares or bullish call options in PEP a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Fundsmith LLP, managed by Terry Smith, holds the number one position in PepsiCo, Inc. (NYSE:PEP). Fundsmith LLP has a $1.4946 billion position in the stock, comprising 4.1% of its 13F portfolio. The second most bullish fund manager is Donald Yacktman of Yacktman Asset Management, with a $663.6 million position; 6.4% of its 13F portfolio is allocated to the company. Some other professional money managers with similar optimism consist of Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Ric Dillon’s Diamond Hill Capital and Ray Dalio’s Bridgewater Associates. In terms of the portfolio weights assigned to each position Kehrs Ridge Capital allocated the biggest weight to PepsiCo, Inc. (NYSE:PEP), around 6.65% of its 13F portfolio. Yacktman Asset Management is also relatively very bullish on the stock, earmarking 6.44 percent of its 13F equity portfolio to PEP.

As one would reasonably expect, key money managers have jumped into PepsiCo, Inc. (NYSE:PEP) headfirst. Junto Capital Management, managed by James Parsons, established the biggest position in PepsiCo, Inc. (NYSE:PEP). Junto Capital Management had $39.9 million invested in the company at the end of the quarter. Simon Sadler’s Segantii Capital also made a $22.2 million investment in the stock during the quarter. The other funds with brand new PEP positions are Andrew Weiss’s Weiss Asset Management, D. E. Shaw’s D E Shaw, and Lee Ainslie’s Maverick Capital.

Let’s now review hedge fund activity in other stocks similar to PepsiCo, Inc. (NYSE:PEP). These stocks are Chevron Corporation (NYSE:CVX), AbbVie Inc (NYSE:ABBV), Thermo Fisher Scientific Inc. (NYSE:TMO), Merck & Co., Inc. (NYSE:MRK), Broadcom Inc (NASDAQ:AVGO), Novo Nordisk A/S (NYSE:NVO), and Danaher Corporation (NYSE:DHR). This group of stocks’ market caps are closest to PEP’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 63.3 hedge funds with bullish positions and the average amount invested in these stocks was $5046 million. That figure was $5194 million in PEP’s case. Thermo Fisher Scientific Inc. (NYSE:TMO) is the most popular stock in this table. On the other hand Novo Nordisk A/S (NYSE:NVO) is the least popular one with only 20 bullish hedge fund positions. PepsiCo, Inc. (NYSE:PEP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PEP is 74.3. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 25.7% in 2021 through September 27th and still beat the market by 6.2 percentage points. Hedge funds were also right about betting on PEP, though not to the same extent, as the stock returned 3.8% since Q2 (through September 27th) and outperformed the market as well.

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

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