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Were Hedge Funds Too Quick To Sell Restaurant Brands International Inc (QSR)?

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 thoughtRestaurant Brands International Inc (NYSE:QSR) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Restaurant Brands International Inc (NYSE:QSR) an outstanding investment now? Investors who are in the know were in a bearish mood. The number of long hedge fund bets went down by 11 recently. Our calculations also showed that QSR 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 S&P 500 ETFs by 58 percentage points since March 2017 (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.

Eric Mandelblatt Soroban Capital Partners

Eric Mandelblatt of Soroban Capital Partners

Keeping this in mind we’re going to take a glance at the latest hedge fund action encompassing Restaurant Brands International Inc (NYSE:QSR).

How are hedge funds trading Restaurant Brands International Inc (NYSE:QSR)?

At the end of the first quarter, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of -21% from the previous quarter. On the other hand, there were a total of 37 hedge funds with a bullish position in QSR a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Pershing Square held the most valuable stake in Restaurant Brands International Inc (NYSE:QSR), which was worth $603.8 million at the end of the third quarter. On the second spot was Berkshire Hathaway which amassed $337.8 million worth of shares. Soroban Capital Partners, Maverick Capital, and Eminence Capital 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 Clearfield Capital allocated the biggest weight to Restaurant Brands International Inc (NYSE:QSR), around 10.84% of its 13F portfolio. Pershing Square is also relatively very bullish on the stock, earmarking 9.19 percent of its 13F equity portfolio to QSR.

Due to the fact that Restaurant Brands International Inc (NYSE:QSR) has witnessed declining sentiment from the aggregate hedge fund industry, we can see that there lies a certain “tier” of fund managers who were dropping their full holdings heading into Q4. It’s worth mentioning that Robert Pitts’s Steadfast Capital Management cut the largest investment of the 750 funds tracked by Insider Monkey, valued at an estimated $211.3 million in stock. Robert Pohly’s fund, Samlyn Capital, also dumped its stock, about $92.9 million worth. These moves are interesting, as total hedge fund interest fell by 11 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Restaurant Brands International Inc (NYSE:QSR) but similarly valued. We will take a look at Lennar Corporation (NYSE:LEN), Duke Realty Corporation (NYSE:DRE), Jack Henry & Associates, Inc. (NASDAQ:JKHY), and Omnicom Group Inc. (NYSE:OMC). This group of stocks’ market values are similar to QSR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LEN 57 1121019 -6
DRE 16 64897 -8
JKHY 27 277076 -2
OMC 31 327865 9
Average 32.75 447714 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.75 hedge funds with bullish positions and the average amount invested in these stocks was $448 million. That figure was $2250 million in QSR’s case. Lennar Corporation (NYSE:LEN) is the most popular stock in this table. On the other hand Duke Realty Corporation (NYSE:DRE) is the least popular one with only 16 bullish hedge fund positions. Restaurant Brands International Inc (NYSE:QSR) is not the most popular stock in this group but hedge fund interest is still above average. 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 gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on QSR as the stock returned 37.7% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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