How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding The Kraft Heinz Company (NASDAQ:KHC).
Is KHC stock a buy? The Kraft Heinz Company (NASDAQ:KHC) was in 36 hedge funds’ portfolios at the end of December. The all time high for this statistic is 60. KHC has seen a decrease in hedge fund sentiment in recent months. There were 39 hedge funds in our database with KHC positions at the end of the third quarter. Our calculations also showed that KHC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 124 percentage points since March 2017 (see the details here).
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Do Hedge Funds Think KHC Is A Good Stock To Buy Now?
At the end of the fourth quarter, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the previous quarter. The graph below displays the number of hedge funds with bullish position in KHC over the last 22 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in The Kraft Heinz Company (NASDAQ:KHC) was held by Berkshire Hathaway, which reported holding $11286.5 million worth of stock at the end of December. It was followed by Balyasny Asset Management with a $47.5 million position. Other investors bullish on the company included Citadel Investment Group, Bridgewater Associates, and Adage Capital 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 4.18% of its 13F portfolio. Hi-Line Capital Management is also relatively very bullish on the stock, dishing out 2.69 percent of its 13F equity portfolio to KHC.
Because The Kraft Heinz Company (NASDAQ:KHC) has witnessed a decline in interest from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of funds who were dropping their entire stakes in the fourth quarter. It’s worth mentioning that Renaissance Technologies dropped the biggest stake of the “upper crust” of funds monitored by Insider Monkey, valued at close to $31.2 million in stock, and Joseph Samuels’s Islet Management was right behind this move, as the fund said goodbye to about $14.6 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 3 funds in the fourth quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as The Kraft Heinz Company (NASDAQ:KHC) but similarly valued. These stocks are Metlife Inc (NYSE:MET), Roku, Inc. (NASDAQ:ROKU), Align Technology, Inc. (NASDAQ:ALGN), Electronic Arts Inc. (NASDAQ:EA), National Grid plc (NYSE:NGG), Unity Software Inc. (NYSE:U), and DocuSign, Inc. (NASDAQ:DOCU). This group of stocks’ market caps are similar to KHC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MET | 37 | 983027 | 1 |
| ROKU | 60 | 3237943 | 1 |
| ALGN | 50 | 2480630 | 3 |
| EA | 50 | 1050954 | -12 |
| NGG | 5 | 352676 | -1 |
| U | 32 | 11908726 | -3 |
| DOCU | 67 | 4232054 | 5 |
| Average | 43 | 3463716 | -0.9 |
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As you can see these stocks had an average of 43 hedge funds with bullish positions and the average amount invested in these stocks was $3464 million. That figure was $11558 million in KHC’s case. DocuSign, Inc. (NASDAQ:DOCU) is the most popular stock in this table. On the other hand National Grid plc (NYSE:NGG) 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. Our overall hedge fund sentiment score for KHC is 45. 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. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 7.9% in 2021 through April 1st and still beat the market by 0.4 percentage points. A small number of hedge funds were also right about betting on KHC as the stock returned 16.7% since the end of the fourth quarter (through 4/1) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
