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Were Hedge Funds Right About Buying The Kraft Heinz Company (KHC) in September?

Is The Kraft Heinz Company (NASDAQ:KHC) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is The Kraft Heinz Company (NASDAQ:KHC) going to take off soon? Investors who are in the know are getting more optimistic. The number of bullish hedge fund bets went up by 2 lately. Our calculations also showed that KHC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Warren Buffett of Berkshire Hathaway

Warren Buffett of Berkshire Hathaway

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 check out the new hedge fund action regarding The Kraft Heinz Company (NASDAQ:KHC).

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

At Q3’s end, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards KHC over the last 17 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

No of Hedge Funds with KHC Positions

The largest stake in The Kraft Heinz Company (NASDAQ:KHC) was held by Berkshire Hathaway, which reported holding $9096.6 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $124.7 million position. Other investors bullish on the company included Levin Easterly Partners, Laurion Capital Management, and Armistice Capital. In terms of the portfolio weights assigned to each position Berkshire Hathaway allocated the biggest weight to The Kraft Heinz Company (NASDAQ:KHC), around 4.24% of its portfolio. Fairholme Capital is also relatively very bullish on the stock, earmarking 3.81 percent of its 13F equity portfolio to KHC.

As one would reasonably expect, some big names were leading the bulls’ herd. Armistice Capital, managed by Steven Boyd, established the most valuable position in The Kraft Heinz Company (NASDAQ:KHC). Armistice Capital had $41.9 million invested in the company at the end of the quarter. Cliff Asness’s AQR Capital Management also made a $22.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Bruce Berkowitz’s Fairholme Capital, Renaissance Technologies, and Simon Sadler’s Segantii Capital.

Let’s now review hedge fund activity in other stocks similar to The Kraft Heinz Company (NASDAQ:KHC). These stocks are NetEase, Inc (NASDAQ:NTES), Xcel Energy Inc (NASDAQ:XEL), Thomson Reuters Corporation (NYSE:TRI), and Lam Research Corporation (NASDAQ:LRCX). This group of stocks’ market valuations resemble KHC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NTES 30 3513002 -4
XEL 17 573407 -1
TRI 19 360770 2
LRCX 47 2130443 12
Average 28.25 1644406 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $1644 million. That figure was $9573 million in KHC’s case. Lam Research Corporation (NASDAQ:LRCX) is the most popular stock in this table. On the other hand Xcel Energy Inc (NASDAQ:XEL) is the least popular one with only 17 bullish hedge fund positions. The Kraft Heinz Company (NASDAQ:KHC) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on KHC as the stock returned 10.5% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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