It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned 31.2% in 2019. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.3% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Yum China Holdings, Inc. (NYSE:YUMC).
Yum China Holdings, Inc. (NYSE:YUMC) investors should pay attention to an increase in support from the world’s most elite money managers lately. Our calculations also showed that YUMC 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).
Today there are a lot of tools market participants employ to size up stocks. A pair of the best tools are hedge fund and insider trading moves. We have shown that, historically, those who follow the top picks of the elite hedge fund managers can beat the market by a healthy amount (see the details here).
Kerr Neilson of Platinum Asset Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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 is still extremely cheap despite already gaining 20 percent. Now let’s take a glance at the new hedge fund action regarding Yum China Holdings, Inc. (NYSE:YUMC).
Hedge fund activity in Yum China Holdings, Inc. (NYSE:YUMC)
Heading into the fourth quarter of 2019, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from the previous quarter. By comparison, 26 hedge funds held shares or bullish call options in YUMC 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.
More specifically, Renaissance Technologies was the largest shareholder of Yum China Holdings, Inc. (NYSE:YUMC), with a stake worth $62.9 million reported as of the end of September. Trailing Renaissance Technologies was GuardCap Asset Management, which amassed a stake valued at $61.4 million. Platinum Asset Management, GLG Partners, and AQR 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 Ariose Capital allocated the biggest weight to Yum China Holdings, Inc. (NYSE:YUMC), around 24.79% of its 13F portfolio. Tiger Pacific Capital is also relatively very bullish on the stock, dishing out 7.5 percent of its 13F equity portfolio to YUMC.
Now, some big names were breaking ground themselves. Weld Capital Management, managed by Minhua Zhang, initiated the most valuable position in Yum China Holdings, Inc. (NYSE:YUMC). Weld Capital Management had $0.3 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also made a $0.2 million investment in the stock during the quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Yum China Holdings, Inc. (NYSE:YUMC) but similarly valued. These stocks are Martin Marietta Materials, Inc. (NYSE:MLM), Omnicom Group Inc. (NYSE:OMC), Arch Capital Group Ltd. (NASDAQ:ACGL), and Equifax Inc. (NYSE:EFX). All of these stocks’ market caps resemble YUMC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MLM | 40 | 2550137 | 0 |
| OMC | 24 | 478571 | 1 |
| ACGL | 21 | 1306954 | -2 |
| EFX | 26 | 1728610 | -8 |
| Average | 27.75 | 1516068 | -2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.75 hedge funds with bullish positions and the average amount invested in these stocks was $1516 million. That figure was $466 million in YUMC’s case. Martin Marietta Materials, Inc. (NYSE:MLM) is the most popular stock in this table. On the other hand Arch Capital Group Ltd. (NASDAQ:ACGL) is the least popular one with only 21 bullish hedge fund positions. Yum China Holdings, Inc. (NYSE:YUMC) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on YUMC as the stock returned 44.9% in 2019 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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.
