Was The Smart Money Right About Piling Into Yum China Holdings, Inc. (YUMC)?

In this article you are going to find out whether hedge funds think Yum China Holdings, Inc. (NYSE:YUMC) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Yum China Holdings, Inc. (NYSE:YUMC) was in 35 hedge funds’ portfolios at the end of June. The all time high for this statistics is 34. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. YUMC investors should be aware of an increase in enthusiasm from smart money lately. There were 24 hedge funds in our database with YUMC holdings at the end of March. Our calculations also showed that YUMC isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 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

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 biggest telecom companies to identify fast growing companies in various industries. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let’s take a peek at the latest hedge fund action regarding Yum China Holdings, Inc. (NYSE:YUMC).

How have hedgies been trading Yum China Holdings, Inc. (NYSE:YUMC)?

At second quarter’s end, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 46% from the previous quarter. By comparison, 28 hedge funds held shares or bullish call options in YUMC a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Guardian Capital’s GuardCap Asset Management has the number one position in Yum China Holdings, Inc. (NYSE:YUMC), worth close to $178.2 million, comprising 6.8% of its total 13F portfolio. The second most bullish fund manager is Antipodes Partners, led by Jacob Mitchell, holding a $130.7 million position; the fund has 5.9% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions contain Hyder Ahmad’s Broad Peak Investment Holdings, Kerr Neilson’s Platinum Asset Management and Brett Barakett’s Tremblant Capital. 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 9.63% of its 13F portfolio. Tiger Pacific Capital is also relatively very bullish on the stock, dishing out 8.36 percent of its 13F equity portfolio to YUMC.

With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Driehaus Capital, managed by Richard Driehaus, created the most valuable position in Yum China Holdings, Inc. (NYSE:YUMC). Driehaus Capital had $31.9 million invested in the company at the end of the quarter. Noam Gottesman’s GLG Partners also initiated a $26.8 million position during the quarter. The other funds with brand new YUMC positions are James Parsons’s Junto Capital Management, D. E. Shaw’s D E Shaw, and Ryan Caldwell’s Chiron Investment Management.

Let’s also examine hedge fund activity in other stocks similar to Yum China Holdings, Inc. (NYSE:YUMC). These stocks are DISH Network Corp. (NASDAQ:DISH), Chewy, Inc. (NYSE:CHWY), Delta Air Lines, Inc. (NYSE:DAL), Fortis Inc. (NYSE:FTS), PG&E Corporation (NYSE:PCG), Slack Technologies Inc (NYSE:WORK), and Akamai Technologies, Inc. (NASDAQ:AKAM). This group of stocks’ market caps are similar to YUMC’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 44.1 hedge funds with bullish positions and the average amount invested in these stocks was $1318 million. That figure was $840 million in YUMC’s case. PG&E Corporation (NYSE:PCG) is the most popular stock in this table. On the other hand Fortis Inc. (NYSE:FTS) is the least popular one with only 8 bullish hedge fund positions. Yum China Holdings, Inc. (NYSE:YUMC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for YUMC is 56.1. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. A small number of hedge funds were also right about betting on YUMC as the stock returned 10.7% since the end of the second quarter (through 10/30) and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.