Were Hedge Funds Right About Dumping Yum! Brands, Inc. (YUM)?

Is Yum! Brands, Inc. (NYSE:YUM) a good stock to buy now? Money managers are becoming more confident. The number of long hedge fund positions went up by 4 lately. We should note that the overall trend in hedge fund sentiment is still very negative. YUM was among the most popular hedge fund stocks in 2015, however, our current calculations showed that YUM isn’t among the 30 most popular stocks among hedge funds anymore.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

BlueMountain Capital Management's Returns, AUM and Holdings

We’re going to review the new hedge fund action surrounding Yum! Brands, Inc. (NYSE:YUM).

What have hedge funds been doing with Yum! Brands, Inc. (NYSE:YUM)?

At Q4’s end, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the previous quarter. On the other hand, there were a total of 22 hedge funds with a bullish position in YUM a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.


More specifically, D E Shaw was the largest shareholder of Yum! Brands, Inc. (NYSE:YUM), with a stake worth $267.2 million reported as of the end of September. Trailing D E Shaw was Two Sigma Advisors, which amassed a stake valued at $235.4 million. Citadel Investment Group, Arrowstreet Capital, and Marshall Wace LLP were also very fond of the stock, giving the stock large weights in their portfolios.

As industrywide interest jumped, key hedge funds have been driving this bullishness. Melvin Capital Management, managed by Gabriel Plotkin, created the biggest position in Yum! Brands, Inc. (NYSE:YUM). Melvin Capital Management had $55.2 million invested in the company at the end of the quarter. Jim Simons’s Renaissance Technologies also initiated a $29.8 million position during the quarter. The other funds with brand new YUM positions are Paul Tudor Jones’s Tudor Investment Corp, Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital, and Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital.

Let’s check out hedge fund activity in other stocks similar to Yum! Brands, Inc. (NYSE:YUM). These stocks are The Allstate Corporation (NYSE:ALL), Dollar General Corp. (NYSE:DG), Equinix Inc (REIT) (NASDAQ:EQIX), and Fiat Chrysler Automobiles NV (NYSE:FCAU). This group of stocks’ market caps are similar to YUM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ALL 34 1767647 0
DG 30 1295630 -1
EQIX 42 1697510 1
FCAU 34 2240973 1
Average 35 1750440 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $1750 million. That figure was $1304 million in YUM’s case. Equinix Inc (REIT) (NASDAQ:EQIX) is the most popular stock in this table. On the other hand Dollar General Corp. (NYSE:DG) is the least popular one with only 30 bullish hedge fund positions. Yum! Brands, Inc. (NYSE:YUM) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Unfortunately YUM wasn’t in this group. Hedge funds that bet on YUM were disappointed as the stock returned 10.3% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 13 of these outperformed the market.

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