Were Hedge Funds Right About Quitting PepsiCo, Inc. (PEP)?

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 PepsiCo, Inc. (NYSE:PEP) based on that data and determine whether they were really smart about the stock.

PepsiCo, Inc. (NYSE:PEP) was in 57 hedge funds’ portfolios at the end of March. PEP investors should pay attention to a decrease in activity from the world’s largest hedge funds recently. There were 59 hedge funds in our database with PEP holdings at the end of the previous quarter. Our calculations also showed that PEP 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 21st century investor’s toolkit there are tons of methods stock traders have at their disposal to appraise their stock investments. A pair of the less known methods are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the top picks of the top investment managers can beat the S&P 500 by a very impressive margin (see the details here).


Ray Dalio of Bridgewater Associates

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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 gold prices. So, we are checking out this junior gold mining stock. 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. Keeping this in mind we’re going to take a look at the fresh hedge fund action surrounding PepsiCo, Inc. (NYSE:PEP).

What have hedge funds been doing with PepsiCo, Inc. (NYSE:PEP)?

Heading into the second quarter of 2020, a total of 57 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from the previous quarter. By comparison, 51 hedge funds held shares or bullish call options in PEP 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.

Is PEP A Good Stock To Buy?

Among these funds, AQR Capital Management held the most valuable stake in PepsiCo, Inc. (NYSE:PEP), which was worth $667.8 million at the end of the third quarter. On the second spot was Yacktman Asset Management which amassed $406.1 million worth of shares. Diamond Hill Capital, D E Shaw, and Adage Capital Management 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 Yacktman Asset Management allocated the biggest weight to PepsiCo, Inc. (NYSE:PEP), around 6.73% of its 13F portfolio. Candlestick Capital Management is also relatively very bullish on the stock, earmarking 2.81 percent of its 13F equity portfolio to PEP.

Due to the fact that PepsiCo, Inc. (NYSE:PEP) has experienced declining sentiment from hedge fund managers, logic holds that there is a sect of hedgies that elected to cut their positions entirely last quarter. It’s worth mentioning that Michael Kharitonov and Jon David McAuliffe’s Voleon Capital dropped the biggest position of the “upper crust” of funds watched by Insider Monkey, comprising about $32.5 million in stock. Matthew Tewksbury’s fund, Stevens Capital Management, also cut its stock, about $9.7 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 2 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as PepsiCo, Inc. (NYSE:PEP) but similarly valued. These stocks are Cisco Systems, Inc. (NASDAQ:CSCO), Netflix, Inc. (NASDAQ:NFLX), NVIDIA Corporation (NASDAQ:NVDA), and Exxon Mobil Corporation (NYSE:XOM). All of these stocks’ market caps match PEP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CSCO 58 2531778 -10
NFLX 109 13648064 -5
NVDA 95 4127764 16
XOM 65 1295305 2
Average 81.75 5400728 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 81.75 hedge funds with bullish positions and the average amount invested in these stocks was $5401 million. That figure was $2820 million in PEP’s case. Netflix, Inc. (NASDAQ:NFLX) is the most popular stock in this table. On the other hand Cisco Systems, Inc. (NASDAQ:CSCO) is the least popular one with only 58 bullish hedge fund positions. Compared to these stocks PepsiCo, Inc. (NYSE:PEP) is even less popular than CSCO. Hedge funds dodged a bullet by taking a bearish stance towards PEP. 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 PEP wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); PEP investors were disappointed as the stock returned 11% 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.