It has been a fantastic year for equity investors as Donald Trump pressured Federal Reserve to reduce interest rates and finalized the first leg of a trade deal with China. If you were a passive index fund investor, you had seen gains of 31% in your equity portfolio in 2019. However, if you were an active investor putting your money into hedge funds’ favorite stocks, you had seen gains of more than 41%. In this article we are going to take a look at how hedge funds feel about a stock like McDonald’s Corporation (NYSE:MCD) and compare its performance against hedge funds’ favorite stocks.
Is McDonald’s Corporation (NYSE:MCD) a bargain? Money managers are becoming less confident. The number of long hedge fund bets were cut by 3 in recent months. Our calculations also showed that MCD isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
At the moment there are plenty of signals market participants can use to assess publicly traded companies. A duo of the best signals are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the top picks of the elite hedge fund managers can outpace the market by a significant margin (see the details here).
David E. Shaw of D.E. Shaw
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now we’re going to take a look at the fresh hedge fund action encompassing McDonald’s Corporation (NYSE:MCD).
How have hedgies been trading McDonald’s Corporation (NYSE:MCD)?
At Q3’s end, a total of 49 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards MCD over the last 17 quarters. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
More specifically, D E Shaw was the largest shareholder of McDonald’s Corporation (NYSE:MCD), with a stake worth $425.1 million reported as of the end of September. Trailing D E Shaw was Two Sigma Advisors, which amassed a stake valued at $419.1 million. AQR Capital Management, Adage Capital Management, and Arrowstreet 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 Emerson Point Capital allocated the biggest weight to McDonald’s Corporation (NYSE:MCD), around 3.49% of its 13F portfolio. ZWEIG DIMENNA PARTNERS is also relatively very bullish on the stock, dishing out 2.53 percent of its 13F equity portfolio to MCD.
Judging by the fact that McDonald’s Corporation (NYSE:MCD) has faced a decline in interest from the smart money, it’s easy to see that there were a few hedgies that elected to cut their full holdings heading into Q4. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management sold off the largest investment of the 750 funds followed by Insider Monkey, worth close to $130.8 million in stock, and Brandon Haley’s Holocene Advisors was right behind this move, as the fund dropped about $130.7 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds heading into Q4.
Let’s now take a look at hedge fund activity in other stocks similar to McDonald’s Corporation (NYSE:MCD). We will take a look at Unilever plc (NYSE:UL), Unilever N.V. (NYSE:UN), Citigroup Inc. (NYSE:C), and HSBC Holdings plc (NYSE:HSBC). This group of stocks’ market values are similar to MCD’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| UL | 14 | 337374 | 4 |
| UN | 15 | 1157802 | -1 |
| C | 94 | 10270591 | 11 |
| HSBC | 14 | 1124229 | -2 |
| Average | 34.25 | 3222499 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.25 hedge funds with bullish positions and the average amount invested in these stocks was $3222 million. That figure was $2076 million in MCD’s case. Citigroup Inc. (NYSE:C) is the most popular stock in this table. On the other hand Unilever plc (NYSE:UL) is the least popular one with only 14 bullish hedge fund positions. McDonald’s Corporation (NYSE:MCD) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately MCD wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MCD were disappointed as the stock returned 13.2% in 2019 (through December 23rd) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
