We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the fourth quarter, which unveil their equity positions as of December 31. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Yum China Holdings, Inc. (NYSE:YUMC).
Is Yum China Holdings, Inc. (NYSE:YUMC) the right investment to pursue these days? Prominent investors are taking a pessimistic view. The number of bullish hedge fund bets were cut by 5 in recent months. Our calculations also showed that YUMC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). YUMC was in 29 hedge funds’ portfolios at the end of December. There were 34 hedge funds in our database with YUMC positions at the end of the previous quarter.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Kerr Neilson of Platinum Asset Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s go over the key hedge fund action regarding Yum China Holdings, Inc. (NYSE:YUMC).
What have hedge funds been doing with Yum China Holdings, Inc. (NYSE:YUMC)?
At the end of the fourth quarter, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from the third quarter of 2019. On the other hand, there were a total of 26 hedge funds with a bullish position in YUMC a year ago. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
The largest stake in Yum China Holdings, Inc. (NYSE:YUMC) was held by Antipodes Partners, which reported holding $124.3 million worth of stock at the end of September. It was followed by Broad Peak Investment Holdings with a $115 million position. Other investors bullish on the company included Platinum Asset Management, GuardCap Asset Management, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Broad Peak Investment Holdings allocated the biggest weight to Yum China Holdings, Inc. (NYSE:YUMC), around 12.93% of its 13F portfolio. Sensato Capital Management is also relatively very bullish on the stock, earmarking 9.25 percent of its 13F equity portfolio to YUMC.
Since Yum China Holdings, Inc. (NYSE:YUMC) has faced a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there exists a select few money managers that decided to sell off their positions entirely heading into Q4. Intriguingly, Yi Xin’s Ariose Capital dumped the largest investment of all the hedgies followed by Insider Monkey, comprising an estimated $19.3 million in stock, and Ryan Caldwell’s Chiron Investment Management was right behind this move, as the fund dumped about $14 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 5 funds heading into Q4.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Yum China Holdings, Inc. (NYSE:YUMC) but similarly valued. We will take a look at CMS Energy Corporation (NYSE:CMS), Marvell Technology Group Ltd. (NASDAQ:MRVL), Arthur J. Gallagher & Co. (NYSE:AJG), and ArcelorMittal (NYSE:MT). This group of stocks’ market values resemble YUMC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CMS | 30 | 526352 | 0 |
| MRVL | 29 | 584397 | -5 |
| AJG | 31 | 395355 | 4 |
| MT | 17 | 353286 | 3 |
| Average | 26.75 | 464848 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.75 hedge funds with bullish positions and the average amount invested in these stocks was $465 million. That figure was $699 million in YUMC’s case. Arthur J. Gallagher & Co. (NYSE:AJG) is the most popular stock in this table. On the other hand ArcelorMittal (NYSE:MT) is the least popular one with only 17 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. These stocks lost 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. Hedge funds were also right about betting on YUMC as the stock returned -13.6% during the first quarter (through March 16th) 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.
