Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish 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. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider McDonald’s Corporation (NYSE:MCD) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.
Is McDonald’s Corporation (NYSE:MCD) going to take off soon? Investors who are in the know are turning bullish. The number of bullish hedge fund bets inched up by 5 recently. Our calculations also showed that MCD 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.
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.
Clint Carlson of Carlson Capital
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. Keeping this in mind let’s take a look at the key hedge fund action surrounding McDonald’s Corporation (NYSE:MCD).
What have hedge funds been doing with McDonald’s Corporation (NYSE:MCD)?
At Q4’s end, a total of 57 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MCD over the last 18 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
More specifically, Two Sigma Advisors was the largest shareholder of McDonald’s Corporation (NYSE:MCD), with a stake worth $409.3 million reported as of the end of September. Trailing Two Sigma Advisors was D E Shaw, which amassed a stake valued at $258.1 million. AQR Capital Management, Adage Capital Management, and Citadel Investment Group 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 Interval Partners allocated the biggest weight to McDonald’s Corporation (NYSE:MCD), around 2.99% of its 13F portfolio. North Fourth Asset Management is also relatively very bullish on the stock, earmarking 2.9 percent of its 13F equity portfolio to MCD.
As aggregate interest increased, key hedge funds have been driving this bullishness. Interval Partners, managed by Gregg Moskowitz, created the largest position in McDonald’s Corporation (NYSE:MCD). Interval Partners had $83.4 million invested in the company at the end of the quarter. James Parsons’s Junto Capital Management also initiated a $26.3 million position during the quarter. The following funds were also among the new MCD investors: Anthony Joseph Vaccarino’s North Fourth Asset Management, Clint Carlson’s Carlson Capital, and Qing Li’s Sciencast Management.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as McDonald’s Corporation (NYSE:MCD) but similarly valued. We will take a look at PetroChina Company Limited (NYSE:PTR), salesforce.com, inc. (NYSE:CRM), NVIDIA Corporation (NASDAQ:NVDA), and Amgen, Inc. (NASDAQ:AMGN). All of these stocks’ market caps are closest to MCD’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PTR | 13 | 94057 | 0 |
| CRM | 112 | 9798571 | 3 |
| NVDA | 79 | 3179400 | 23 |
| AMGN | 58 | 2290267 | 3 |
| Average | 65.5 | 3840574 | 7.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 65.5 hedge funds with bullish positions and the average amount invested in these stocks was $3841 million. That figure was $1633 million in MCD’s case. salesforce.com, inc. (NYSE:CRM) is the most popular stock in this table. On the other hand PetroChina Company Limited (NYSE:PTR) is the least popular one with only 13 bullish hedge fund positions. McDonald’s Corporation (NYSE:MCD) is not the least popular stock in this group but hedge fund interest is still below 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 12.9% in 2020 through March 9th but still beat the market by 1.9 percentage points. A small number of hedge funds were also right about betting on MCD as the stock returned -4.8% during the same time period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
