Is Shake Shack Inc (SHAK) Going To Burn These Hedge Funds ?

As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the third quarter. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Shake Shack Inc (NYSE:SHAK).

Is Shake Shack Inc (NYSE:SHAK) the right investment to pursue these days? Money managers are getting less bullish. The number of long hedge fund bets decreased by 1 in recent months. Our calculations also showed that SHAK isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). SHAK was in 26 hedge funds’ portfolios at the end of September. There were 27 hedge funds in our database with SHAK holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Roberto Mignone of Bridger Management

Roberto Mignone of Bridger Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to review the fresh hedge fund action regarding Shake Shack Inc (NYSE:SHAK).

What have hedge funds been doing with Shake Shack Inc (NYSE:SHAK)?

At Q3’s end, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SHAK over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.


More specifically, 12 West Capital Management was the largest shareholder of Shake Shack Inc (NYSE:SHAK), with a stake worth $254.7 million reported as of the end of September. Trailing 12 West Capital Management was Renaissance Technologies, which amassed a stake valued at $169.7 million. D E Shaw, Citadel Investment Group, and Bridger 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 12 West Capital Management allocated the biggest weight to Shake Shack Inc (NYSE:SHAK), around 16.4% of its portfolio. Bridger Management is also relatively very bullish on the stock, dishing out 2.94 percent of its 13F equity portfolio to SHAK.

Seeing as Shake Shack Inc (NYSE:SHAK) has faced falling interest from hedge fund managers, it’s easy to see that there exists a select few hedge funds that elected to cut their entire stakes heading into Q4. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management dumped the largest stake of the 750 funds watched by Insider Monkey, comprising about $34.5 million in stock, and Josh Tarasoff’s Greenlea Lane Capital was right behind this move, as the fund said goodbye to about $12.1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 1 funds heading into Q4.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Shake Shack Inc (NYSE:SHAK) but similarly valued. These stocks are Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL), Penske Automotive Group, Inc. (NYSE:PAG), Compania de Minas Buenaventura SA (NYSE:BVN), and United Bankshares, Inc. (NASDAQ:UBSI). This group of stocks’ market caps are similar to SHAK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CBRL 21 240229 -1
PAG 16 63851 -1
BVN 6 14159 -1
UBSI 10 24052 -4
Average 13.25 85573 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $86 million. That figure was $607 million in SHAK’s case. Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) is the most popular stock in this table. On the other hand Compania de Minas Buenaventura SA (NYSE:BVN) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Shake Shack Inc (NYSE:SHAK) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately SHAK wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SHAK were disappointed as the stock returned -36.8% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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