Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Yum! Brands, Inc. (NYSE:YUM)? The smart money sentiment can provide an answer to this question.
Yum! Brands, Inc. (NYSE:YUM) investors should be aware of an increase in enthusiasm from smart money lately. Yum! Brands, Inc. (NYSE:YUM) was in 47 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 65. There were 41 hedge funds in our database with YUM positions at the end of the first quarter. Our calculations also showed that YUM 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 best artificial intelligence stocks to pick the best growth 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. 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 website to get excerpts of these letters in your inbox. With all of this in mind we’re going to take a look at the key hedge fund action regarding Yum! Brands, Inc. (NYSE:YUM).
How have hedgies been trading Yum! Brands, Inc. (NYSE:YUM)?
At the end of the second quarter, a total of 47 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from the first quarter of 2020. On the other hand, there were a total of 30 hedge funds with a bullish position in YUM a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Citadel Investment Group was the largest shareholder of Yum! Brands, Inc. (NYSE:YUM), with a stake worth $282.2 million reported as of the end of September. Trailing Citadel Investment Group was Millennium Management, which amassed a stake valued at $188.9 million. Melvin Capital Management, Alkeon Capital Management, and Two Sigma Advisors 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 Incline Global Management allocated the biggest weight to Yum! Brands, Inc. (NYSE:YUM), around 6.54% of its 13F portfolio. Becker Drapkin Management is also relatively very bullish on the stock, designating 3.97 percent of its 13F equity portfolio to YUM.
Consequently, key money managers were leading the bulls’ herd. Junto Capital Management, managed by James Parsons, created the biggest position in Yum! Brands, Inc. (NYSE:YUM). Junto Capital Management had $90.9 million invested in the company at the end of the quarter. Eric W. Mandelblatt and Gaurav Kapadia’s Soroban Capital Partners also made a $89.7 million investment in the stock during the quarter. The following funds were also among the new YUM investors: Doug Silverman and Alexander Klabin’s Senator Investment Group, Louis Bacon’s Moore Global Investments, and Stanley Druckenmiller’s Duquesne Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Yum! Brands, Inc. (NYSE:YUM) but similarly valued. These stocks are Republic Services, Inc. (NYSE:RSG), KKR & Co Inc. (NYSE:KKR), Datadog, Inc. (NASDAQ:DDOG), Hormel Foods Corporation (NYSE:HRL), PACCAR Inc (NASDAQ:PCAR), AFLAC Incorporated (NYSE:AFL), and Suncor Energy Inc. (NYSE:SU). This group of stocks’ market valuations match YUM’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 37 hedge funds with bullish positions and the average amount invested in these stocks was $1235 million. That figure was $1633 million in YUM’s case. Datadog, Inc. (NASDAQ:DDOG) is the most popular stock in this table. On the other hand Hormel Foods Corporation (NYSE:HRL) is the least popular one with only 27 bullish hedge fund positions. Yum! Brands, Inc. (NYSE:YUM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for YUM is 65. 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 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 30% in 2020 through October 23rd and still beat the market by 21 percentage points. Hedge funds were also right about betting on YUM as the stock returned 17.1% since the end of Q2 (through 10/23) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.