Hedge Funds Are Shunning The Coca-Cola Company (KO)

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards The Coca-Cola Company (NYSE:KO).

Is The Coca-Cola Company (NYSE:KO) a good investment today? The smart money was cutting their exposure. The number of long hedge fund bets went down by 1 recently. The Coca-Cola Company (NYSE:KO) was in 61 hedge funds’ portfolios at the end of September. The all time high for this statistic is 62. Our calculations also showed that KO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). There were 62 hedge funds in our database with KO positions at the end of the second quarter.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now let’s take a peek at the recent hedge fund action surrounding The Coca-Cola Company (NYSE:KO).

Dmitry Balyasny of Balyasny Asset Management

Do Hedge Funds Think KO Is A Good Stock To Buy Now?

At the end of September, a total of 61 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -2% from one quarter earlier. By comparison, 60 hedge funds held shares or bullish call options in KO 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, Berkshire Hathaway was the largest shareholder of The Coca-Cola Company (NYSE:KO), with a stake worth $20988 million reported as of the end of September. Trailing Berkshire Hathaway was Arrowstreet Capital, which amassed a stake valued at $488.3 million. Citadel Investment Group, Renaissance Technologies, and Bridgewater Associates 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 Berkshire Hathaway allocated the biggest weight to The Coca-Cola Company (NYSE:KO), around 7.15% of its 13F portfolio. Pittencrieff Partners – Gabalex Capital is also relatively very bullish on the stock, earmarking 6.06 percent of its 13F equity portfolio to KO.

Since The Coca-Cola Company (NYSE:KO) has witnessed declining sentiment from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of fund managers that slashed their full holdings heading into Q4. It’s worth mentioning that Panayotis Takis Sparaggis’s Alkeon Capital Management dumped the largest position of the “upper crust” of funds watched by Insider Monkey, valued at an estimated $54.1 million in stock, and Jacob Rothschild’s RIT Capital Partners was right behind this move, as the fund cut about $39.5 million worth. These transactions are interesting, as total hedge fund interest fell by 1 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as The Coca-Cola Company (NYSE:KO) but similarly valued. We will take a look at Thermo Fisher Scientific Inc. (NYSE:TMO), Verizon Communications Inc. (NYSE:VZ), Eli Lilly and Company (NYSE:LLY), Novo Nordisk A/S (NYSE:NVO), Danaher Corporation (NYSE:DHR), Intel Corporation (NASDAQ:INTC), and Abbott Laboratories (NYSE:ABT). All of these stocks’ market caps are similar to KO’s market cap.

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As you can see these stocks had an average of 63.3 hedge funds with bullish positions and the average amount invested in these stocks was $6277 million. That figure was $25137 million in KO’s case. Thermo Fisher Scientific Inc. (NYSE:TMO) is the most popular stock in this table. On the other hand Novo Nordisk A/S (NYSE:NVO) is the least popular one with only 27 bullish hedge fund positions. The Coca-Cola Company (NYSE:KO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for KO is 58.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.6% in 2021 through November 30th and surpassed the market again by 5.6 percentage points. Unfortunately KO wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); KO investors were disappointed as the stock returned 0.7% since the end of September (through 11/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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