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

Stocks, especially the once high flying technology stocks, had a lousy start to the new year. QQQ lost 9% of its value in January. We aren’t certain about the bubbly technology stocks that trade for ridiculously high multiples of their revenues, but we believe top hedge fund stocks will deliver positive returns for the rest of the year. In this article, we will take a closer look at hedge fund sentiment towards Yum China Holdings, Inc. (NYSE:YUMC) at the end of the third quarter and determine whether the smart money was really smart about this stock.

Yum China Holdings, Inc. (NYSE:YUMC) shareholders have witnessed a decrease in support from the world’s most elite money managers recently. Yum China Holdings, Inc. (NYSE:YUMC) was in 30 hedge funds’ portfolios at the end of September. The all time high for this statistic is 39. Our calculations also showed that YUMC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we’re going to take a look at the fresh hedge fund action regarding Yum China Holdings, Inc. (NYSE:YUMC).

Steven Cohen of Point72 Asset Management

Do Hedge Funds Think YUMC Is A Good Stock To Buy Now?

At the end of the third quarter, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards YUMC over the last 25 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, GuardCap Asset Management, managed by Guardian Capital, holds the largest position in Yum China Holdings, Inc. (NYSE:YUMC). GuardCap Asset Management has a $498.2 million position in the stock, comprising 6.9% of its 13F portfolio. The second largest stake is held by Antipodes Partners, led by Jacob Mitchell, holding a $64 million position; 2.2% of its 13F portfolio is allocated to the stock. Some other members of the smart money that are bullish contain Brett Barakett’s Tremblant Capital, Ray Dalio’s Bridgewater Associates and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position GuardCap Asset Management allocated the biggest weight to Yum China Holdings, Inc. (NYSE:YUMC), around 6.86% of its 13F portfolio. Tiger Pacific Capital is also relatively very bullish on the stock, dishing out 5.05 percent of its 13F equity portfolio to YUMC.

Since Yum China Holdings, Inc. (NYSE:YUMC) has experienced declining sentiment from the entirety of the hedge funds we track, we can see that there is a sect of funds that decided to sell off their entire stakes by the end of the third quarter. Interestingly, Michael Gelband’s ExodusPoint Capital dumped the biggest stake of the 750 funds followed by Insider Monkey, valued at close to $4.2 million in stock. Ryan Tolkin (CIO)’s fund, Schonfeld Strategic Advisors, also dropped its stock, about $3.7 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 2 funds by the end of the third quarter.

Let’s go over hedge fund activity in other stocks similar to Yum China Holdings, Inc. (NYSE:YUMC). These stocks are The Hartford Financial Services Group Inc (NYSE:HIG), Hess Corporation (NYSE:HES), Devon Energy Corporation (NYSE:DVN), ZoomInfo Technologies Inc. (NASDAQ:ZI), Caesars Entertainment Inc. (NASDAQ:CZR), Credit Suisse Group AG (NYSE:CS), and Rogers Communications Inc. (NYSE:RCI). This group of stocks’ market valuations resemble YUMC’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.4 hedge funds with bullish positions and the average amount invested in these stocks was $1051 million. That figure was $833 million in YUMC’s case. Caesars Entertainment Inc. (NASDAQ:CZR) is the most popular stock in this table. On the other hand Credit Suisse Group AG (NYSE:CS) 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 45.7. 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and surpassed the market again by 3.6 percentage points. Unfortunately, YUMC wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); YUMC investors were disappointed as the stock returned -16.9% since the end of September (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.

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