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Is Molson Coors Beverage Company (TAP) Going to Burn These Hedge Funds?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Molson Coors Beverage Company (NYSE:TAP) in this article.

Molson Coors Beverage Company (NYSE:TAP) investors should be aware of an increase in support from the world’s most elite money managers in recent months. TAP was in 31 hedge funds’ portfolios at the end of December. There were 26 hedge funds in our database with TAP positions at the end of the previous quarter. Our calculations also showed that TAP isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

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.

Millennium Management, Catapult Capital Management

Israel Englander of Millennium Management

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s analyze the key hedge fund action encompassing Molson Coors Beverage Company (NYSE:TAP).

What does smart money think about Molson Coors Beverage Company (NYSE:TAP)?

At the end of the fourth quarter, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of 19% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in TAP over the last 18 quarters. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

More specifically, Ariel Investments was the largest shareholder of Molson Coors Beverage Company (NYSE:TAP), with a stake worth $102 million reported as of the end of September. Trailing Ariel Investments was AQR Capital Management, which amassed a stake valued at $100.6 million. Nitorum Capital, Diamond Hill Capital, and Contrarius Investment Management 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 Prentice Capital Management allocated the biggest weight to Molson Coors Beverage Company (NYSE:TAP), around 4.68% of its 13F portfolio. Callodine Capital Management is also relatively very bullish on the stock, earmarking 3.7 percent of its 13F equity portfolio to TAP.

With a general bullishness amongst the heavyweights, specific money managers were leading the bulls’ herd. Prentice Capital Management, managed by Michael Zimmerman, established the largest position in Molson Coors Beverage Company (NYSE:TAP). Prentice Capital Management had $9.9 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $8.7 million position during the quarter. The following funds were also among the new TAP investors: Israel Englander’s Millennium Management, Brandon Haley’s Holocene Advisors, and Karim Abbadi and Edward McBride’s Centiva Capital.

Let’s now review hedge fund activity in other stocks similar to Molson Coors Beverage Company (NYSE:TAP). These stocks are Ally Financial Inc (NYSE:ALLY), Allegion plc (NYSE:ALLE), Chewy, Inc. (NYSE:CHWY), and Alleghany Corporation (NYSE:Y). All of these stocks’ market caps are closest to TAP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ALLY 54 1809697 -1
ALLE 25 502977 -3
CHWY 35 601434 10
Y 24 384460 -4
Average 34.5 824642 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.5 hedge funds with bullish positions and the average amount invested in these stocks was $825 million. That figure was $403 million in TAP’s case. Ally Financial Inc (NYSE:ALLY) is the most popular stock in this table. On the other hand Alleghany Corporation (NYSE:Y) is the least popular one with only 24 bullish hedge fund positions. Molson Coors Beverage Company (NYSE:TAP) 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 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. A small number of hedge funds were also right about betting on TAP as the stock returned -21.5% during the same time period and outperformed the market by an even larger margin.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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