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Is The Kraft Heinz Company (KHC) Going to Burn These Hedge Funds?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of The Kraft Heinz Company (NASDAQ:KHC) based on that data and determine whether they were really smart about the stock.

The Kraft Heinz Company (NASDAQ:KHC) investors should pay attention to a decrease in enthusiasm from smart money lately. The Kraft Heinz Company (NASDAQ:KHC) was in 35 hedge funds’ portfolios at the end of June. The all time high for this statistics is 60. Our calculations also showed that KHC isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: 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’ 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 58 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.

Warren Buffett of Berkshire Hathaway

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are also checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we’re going to take a gander at the latest hedge fund action encompassing The Kraft Heinz Company (NASDAQ:KHC).

What does smart money think about The Kraft Heinz Company (NASDAQ:KHC)?

At the end of June, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the first quarter of 2020. On the other hand, there were a total of 34 hedge funds with a bullish position in KHC a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Warren Buffett’s Berkshire Hathaway has the biggest position in The Kraft Heinz Company (NASDAQ:KHC), worth close to $10.3845 billion, comprising 5.1% of its total 13F portfolio. Sitting at the No. 2 spot is Millennium Management, led by Israel Englander, holding a $60.1 million position; 0.1% of its 13F portfolio is allocated to the company. Other professional money managers that hold long positions contain Ken Griffin’s Citadel Investment Group, Jack Woodruff’s Candlestick Capital Management and Dmitry Balyasny’s Balyasny Asset Management. In terms of the portfolio weights assigned to each position Berkshire Hathaway allocated the biggest weight to The Kraft Heinz Company (NASDAQ:KHC), around 5.13% of its 13F portfolio. Hi-Line Capital Management is also relatively very bullish on the stock, setting aside 3.15 percent of its 13F equity portfolio to KHC.

Seeing as The Kraft Heinz Company (NASDAQ:KHC) has faced declining sentiment from the aggregate hedge fund industry, it’s easy to see that there was a specific group of hedgies that decided to sell off their full holdings heading into Q3. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dropped the largest stake of the “upper crust” of funds watched by Insider Monkey, worth an estimated $55 million in stock. Mark Coe’s fund, Intrinsic Edge Capital, also sold off its stock, about $20.8 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 4 funds heading into Q3.

Let’s now take a look at hedge fund activity in other stocks similar to The Kraft Heinz Company (NASDAQ:KHC). We will take a look at Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG), DexCom, Inc. (NASDAQ:DXCM), Digital Realty Trust, Inc. (NYSE:DLR), Electronic Arts Inc. (NASDAQ:EA), BCE Inc. (NYSE:BCE), General Mills, Inc. (NYSE:GIS), and Walgreens Boots Alliance Inc (NASDAQ:WBA). This group of stocks’ market caps are closest to KHC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SMFG 10 101369 0
DXCM 55 1710751 -3
DLR 26 274088 -3
EA 67 1988616 -6
BCE 10 176362 -3
GIS 37 912759 -2
WBA 45 490238 0
Average 35.7 807740 -2.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.7 hedge funds with bullish positions and the average amount invested in these stocks was $808 million. That figure was $10727 million in KHC’s case. Electronic Arts Inc. (NASDAQ:EA) is the most popular stock in this table. On the other hand Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG) is the least popular one with only 10 bullish hedge fund positions. The Kraft Heinz Company (NASDAQ:KHC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for KHC is 40.4. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and surpassed the market by 23.2 percentage points. Unfortunately KHC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); KHC investors were disappointed as the stock returned 11.1% since Q2 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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