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

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, 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 you are going to find out whether hedge funds thoughtYum! Brands, Inc. (NYSE:YUM) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Yum! Brands, Inc. (NYSE:YUM) investors should be aware of an increase in support from the world’s most elite money managers in recent months. Our calculations also showed that YUM 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.

According to most market participants, hedge funds are seen as worthless, old investment tools of years past. While there are over 8000 funds in operation today, We look at the upper echelon of this club, about 850 funds. These money managers orchestrate bulk of all hedge funds’ total capital, and by watching their best investments, Insider Monkey has figured out several investment strategies that have historically defeated the broader indices. 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 .

Gabriel Plotkin Melvin Capital Management

Gabriel Plotkin of Melvin Capital Management

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. With all of this in mind let’s view the fresh hedge fund action regarding Yum! Brands, Inc. (NYSE:YUM).

How are hedge funds trading Yum! Brands, Inc. (NYSE:YUM)?

Heading into the second quarter of 2020, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from the previous quarter. By comparison, 32 hedge funds held shares or bullish call options in YUM a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Panayotis Takis Sparaggis’s Alkeon Capital Management has the biggest position in Yum! Brands, Inc. (NYSE:YUM), worth close to $91.9 million, comprising 0.4% of its total 13F portfolio. Sitting at the No. 2 spot is Citadel Investment Group, managed by Ken Griffin, which holds a $78.4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other professional money managers that are bullish contain John Overdeck and David Siegel’s Two Sigma Advisors, Gabriel Plotkin’s Melvin Capital Management and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Becker Drapkin Management allocated the biggest weight to Yum! Brands, Inc. (NYSE:YUM), around 3.95% of its 13F portfolio. Six Columns Capital is also relatively very bullish on the stock, setting aside 3.39 percent of its 13F equity portfolio to YUM.

Consequently, specific money managers have been driving this bullishness. Melvin Capital Management, managed by Gabriel Plotkin, initiated the most outsized position in Yum! Brands, Inc. (NYSE:YUM). Melvin Capital Management had $61.7 million invested in the company at the end of the quarter. Renaissance Technologies also made a $31.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Brad Stephens’s Six Columns Capital, Jeff Lignelli’s Incline Global Management, and Steve Cohen’s Point72 Asset Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Yum! Brands, Inc. (NYSE:YUM) but similarly valued. We will take a look at Johnson Controls International plc (NYSE:JCI), Kellogg Company (NYSE:K), Waste Connections, Inc. (NYSE:WCN), and Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA). All of these stocks’ market caps are closest to YUM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
JCI 37 1063858 0
K 37 610512 7
WCN 33 464735 -4
BBVA 8 142085 0
Average 28.75 570298 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $570 million. That figure was $559 million in YUM’s case. Johnson Controls International plc (NYSE:JCI) is the most popular stock in this table. On the other hand Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Yum! Brands, Inc. (NYSE:YUM) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on YUM as the stock returned 27.5% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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