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Were Hedge Funds Right About Betting On McDonald’s Corporation (MCD)?

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded McDonald’s Corporation (NYSE:MCD) and determine whether the smart money was really smart about this stock.

Is McDonald’s Corporation (NYSE:MCD) undervalued? Money managers were taking a bullish view. The number of bullish hedge fund bets increased by 9 at the end of the first quarter. Our calculations also showed that MCD isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

To most stock holders, hedge funds are assumed to be worthless, outdated financial tools of the past. While there are over 8000 funds in operation at the moment, Our researchers choose to focus on the masters of this group, around 850 funds. These hedge fund managers preside over bulk of all hedge funds’ total capital, and by tracking their finest investments, Insider Monkey has unearthed a few investment strategies that have historically beaten the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s go over the fresh hedge fund action encompassing McDonald’s Corporation (NYSE:MCD).

What does smart money think about McDonald’s Corporation (NYSE:MCD)?

At the end of the first quarter, a total of 66 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 16% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MCD over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Is MCD A Good Stock To Buy?

More specifically, D E Shaw was the largest shareholder of McDonald’s Corporation (NYSE:MCD), with a stake worth $158 million reported as of the end of September. Trailing D E Shaw was Citadel Investment Group, which amassed a stake valued at $155.5 million. AQR Capital Management, Adage 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 MIK Capital allocated the biggest weight to McDonald’s Corporation (NYSE:MCD), around 5.81% of its 13F portfolio. Atreides Management is also relatively very bullish on the stock, setting aside 3.43 percent of its 13F equity portfolio to MCD.

As one would reasonably expect, specific money managers were breaking ground themselves. Renaissance Technologies, assembled the biggest position in McDonald’s Corporation (NYSE:MCD). Renaissance Technologies had $74.1 million invested in the company at the end of the quarter. Anthony Bozza’s Lakewood Capital Management also made a $37.8 million investment in the stock during the quarter. The other funds with brand new MCD positions are Frank Brosens’s Taconic Capital, Gavin Baker’s Atreides Management, and Kamyar Khajavi’s MIK Capital.

Let’s now review hedge fund activity in other stocks similar to McDonald’s Corporation (NYSE:MCD). We will take a look at Medtronic plc (NYSE:MDT), Amgen, Inc. (NASDAQ:AMGN), NextEra Energy, Inc. (NYSE:NEE), and Wells Fargo & Company (NYSE:WFC). This group of stocks’ market values resemble MCD’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MDT 59 1839749 -7
AMGN 52 2056537 -6
NEE 52 1436389 6
WFC 76 12935257 -3
Average 59.75 4566983 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 59.75 hedge funds with bullish positions and the average amount invested in these stocks was $4567 million. That figure was $954 million in MCD’s case. Wells Fargo & Company (NYSE:WFC) is the most popular stock in this table. On the other hand Amgen, Inc. (NASDAQ:AMGN) is the least popular one with only 52 bullish hedge fund positions. McDonald’s Corporation (NYSE:MCD) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 13.3% in 2020 through June 25th but beat the market by 16.8 percentage points. Unfortunately MCD wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MCD were disappointed as the stock returned 11.3% during the same time period 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 many of these stocks already outperformed the market so far this year.

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