Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Restaurant Brands International Inc (NYSE:QSR) has experienced an increase in hedge fund interest of late. QSR was in 55 hedge funds’ portfolios at the end of September. There were 39 hedge funds in our database with QSR holdings at the end of the previous quarter. Our calculations also showed that QSR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Jeffrey Talpins of Element Capital
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a peek at the key hedge fund action encompassing Restaurant Brands International Inc (NYSE:QSR).
How have hedgies been trading Restaurant Brands International Inc (NYSE:QSR)?
At the end of the third quarter, a total of 55 of the hedge funds tracked by Insider Monkey were long this stock, a change of 41% from one quarter earlier. By comparison, 40 hedge funds held shares or bullish call options in QSR a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Pershing Square was the largest shareholder of Restaurant Brands International Inc (NYSE:QSR), with a stake worth $1073.1 million reported as of the end of September. Trailing Pershing Square was Berkshire Hathaway, which amassed a stake valued at $600.3 million. Steadfast Capital Management, Two Sigma Advisors, and Millennium 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 Pershing Square allocated the biggest weight to Restaurant Brands International Inc (NYSE:QSR), around 17.13% of its portfolio. Two Creeks Capital Management is also relatively very bullish on the stock, dishing out 6.84 percent of its 13F equity portfolio to QSR.
With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. Marshall Wace, managed by Paul Marshall and Ian Wace, initiated the most outsized position in Restaurant Brands International Inc (NYSE:QSR). Marshall Wace had $135.1 million invested in the company at the end of the quarter. James Crichton’s Hitchwood Capital Management also made a $99.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Jeffrey Talpins’s Element Capital Management, Simon Sadler’s Segantii Capital, and Lee Ainslie’s Maverick Capital.
Let’s also examine hedge fund activity in other stocks similar to Restaurant Brands International Inc (NYSE:QSR). We will take a look at Best Buy Co., Inc. (NYSE:BBY), CMS Energy Corporation (NYSE:CMS), Lennar Corporation (NYSE:LEN), and KeyCorp (NYSE:KEY). 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 |
|---|---|---|---|
| BBY | 27 | 628028 | -4 |
| CMS | 26 | 942764 | 4 |
| LEN | 57 | 1988724 | 4 |
| KEY | 28 | 671066 | -3 |
| Average | 34.5 | 1057646 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.5 hedge funds with bullish positions and the average amount invested in these stocks was $1058 million. That figure was $4250 million in QSR’s case. Lennar Corporation (NYSE:LEN) is the most popular stock in this table. On the other hand CMS Energy Corporation (NYSE:CMS) is the least popular one with only 26 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. 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately QSR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on QSR were disappointed as the stock returned -7.7% during the fourth quarter (through the end of November) 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.
Disclosure: None. This article was originally published at Insider Monkey.
