Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Is The Kraft Heinz Company (NASDAQ:KHC) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
The Kraft Heinz Company (NASDAQ:KHC) has seen a decrease in activity from the world’s largest hedge funds of late. KHC was in 34 hedge funds’ portfolios at the end of December. There were 39 hedge funds in our database with KHC positions at the end of the previous quarter. Our calculations also showed that KHC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
To most traders, hedge funds are seen as unimportant, old investment tools of yesteryear. While there are more than 8000 funds with their doors open today, Our experts look at the upper echelon of this club, approximately 850 funds. These investment experts command most of the smart money’s total asset base, and by watching their top picks, Insider Monkey has uncovered many investment strategies that have historically beaten the market. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Warren Buffett of Berkshire Hathaway
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, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now let’s take a look at the new hedge fund action encompassing The Kraft Heinz Company (NASDAQ:KHC).
What have hedge funds been doing with The Kraft Heinz Company (NASDAQ:KHC)?
Heading into the first quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the third quarter of 2019. By comparison, 33 hedge funds held shares or bullish call options in KHC a year ago. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Warren Buffett’s Berkshire Hathaway has the most valuable position in The Kraft Heinz Company (NASDAQ:KHC), worth close to $10.4626 billion, comprising 4.3% of its total 13F portfolio. The second most bullish fund manager is Citadel Investment Group, led by Ken Griffin, holding a $56.9 million call position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other peers with similar optimism consist of Renaissance Technologies, Noam Gottesman’s GLG Partners and Joel Greenblatt’s Gotham Asset Management. In terms of the portfolio weights assigned to each position Berkshire Hathaway allocated the biggest weight to The Kraft Heinz Company (NASDAQ:KHC), around 4.32% of its 13F portfolio. Kamunting Street Capital is also relatively very bullish on the stock, setting aside 3.42 percent of its 13F equity portfolio to KHC.
Seeing as The Kraft Heinz Company (NASDAQ:KHC) has faced falling interest from hedge fund managers, we can see that there is a sect of funds who were dropping their entire stakes last quarter. Interestingly, John Murphy’s Levin Easterly Partners dumped the largest stake of the 750 funds tracked by Insider Monkey, comprising close to $44.2 million in stock, and Benjamin A. Smith’s Laurion Capital Management was right behind this move, as the fund said goodbye to about $42.5 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 5 funds last quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as The Kraft Heinz Company (NASDAQ:KHC) but similarly valued. We will take a look at NetEase, Inc (NASDAQ:NTES), Mizuho Financial Group Inc. (NYSE:MFG), Eaton Corporation plc (NYSE:ETN), and Marathon Petroleum Corp (NYSE:MPC). All of these stocks’ market caps are closest to KHC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NTES | 44 | 3818274 | 12 |
| MFG | 5 | 15118 | 1 |
| ETN | 42 | 1224237 | 8 |
| MPC | 69 | 2759103 | 1 |
| Average | 40 | 1954183 | 5.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 40 hedge funds with bullish positions and the average amount invested in these stocks was $1954 million. That figure was $10747 million in KHC’s case. Marathon Petroleum Corp (NYSE:MPC) is the most popular stock in this table. On the other hand Mizuho Financial Group Inc. (NYSE:MFG) is the least popular one with only 5 bullish hedge fund positions. The Kraft Heinz Company (NASDAQ:KHC) is not the least popular stock in this group but hedge fund interest is still below average. 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 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. These stocks lost 11.7% in 2020 through March 11th but beat the market by 3.1 percentage points. Unfortunately KHC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); KHC investors were disappointed as the stock returned -26.4% during the same time period 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 most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
