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Were Hedge Funds Right About Dumping Yum China Holdings, Inc. (YUMC)?

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 first 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 4.5 years and analyze what the smart money thinks of Yum China Holdings, Inc. (NYSE:YUMC) based on that data and determine whether they were really smart about the stock.

Yum China Holdings, Inc. (NYSE:YUMC) has seen a decrease in support from the world’s most elite money managers in recent months. Our calculations also showed that YUMC 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.

In the financial world there are a multitude of indicators stock market investors have at their disposal to grade stocks. A duo of the less known indicators are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the best picks of the top money managers can outperform the S&P 500 by a significant amount (see the details here).

Michael Lowenstein Kensico Capital

Michael Lowenstein of Kensico Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Now let’s take a glance at the new hedge fund action encompassing Yum China Holdings, Inc. (NYSE:YUMC).

What have hedge funds been doing with Yum China Holdings, Inc. (NYSE:YUMC)?

Heading into the second quarter of 2020, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards YUMC over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Broad Peak Investment Holdings, managed by Hyder Ahmad, holds the most valuable position in Yum China Holdings, Inc. (NYSE:YUMC). Broad Peak Investment Holdings has a $140.1 million position in the stock, comprising 16.3% of its 13F portfolio. The second most bullish fund manager is GuardCap Asset Management, led by Guardian Capital, holding a $121 million position; 7% of its 13F portfolio is allocated to the company. Remaining professional money managers that hold long positions include Jacob Mitchell’s Antipodes Partners, Kerr Neilson’s Platinum Asset Management and Michael Lowenstein’s Kensico Capital. In terms of the portfolio weights assigned to each position Broad Peak Investment Holdings allocated the biggest weight to Yum China Holdings, Inc. (NYSE:YUMC), around 16.31% of its 13F portfolio. Tiger Pacific Capital is also relatively very bullish on the stock, dishing out 8.09 percent of its 13F equity portfolio to YUMC.

Due to the fact that Yum China Holdings, Inc. (NYSE:YUMC) has faced a decline in interest from the entirety of the hedge funds we track, we can see that there were a few hedge funds who sold off their positions entirely in the first quarter. It’s worth mentioning that Noam Gottesman’s GLG Partners dumped the largest stake of the 750 funds tracked by Insider Monkey, valued at about $30.2 million in stock, and Manoj Jain and Sohit Khurana’s Maso Capital was right behind this move, as the fund said goodbye to about $7.6 million worth. These moves are interesting, as total hedge fund interest dropped by 5 funds in the first quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Yum China Holdings, Inc. (NYSE:YUMC) but similarly valued. We will take a look at Copart, Inc. (NASDAQ:CPRT), FleetCor Technologies, Inc. (NYSE:FLT), Incyte Corporation (NASDAQ:INCY), and Northern Trust Corporation (NASDAQ:NTRS). This group of stocks’ market values match YUMC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CPRT 48 732842 2
FLT 51 1655053 7
INCY 40 3325488 -6
NTRS 27 330348 -8
Average 41.5 1510933 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 41.5 hedge funds with bullish positions and the average amount invested in these stocks was $1511 million. That figure was $721 million in YUMC’s case. FleetCor Technologies, Inc. (NYSE:FLT) is the most popular stock in this table. On the other hand Northern Trust Corporation (NASDAQ:NTRS) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Yum China Holdings, Inc. (NYSE:YUMC) is even less popular than NTRS. Hedge funds dodged a bullet by taking a bearish stance towards YUMC. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but managed to beat the market by 15.5 percentage points. Unfortunately YUMC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); YUMC investors were disappointed as the stock returned 12.8% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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