Were Hedge Funds Right About McDonald’s Corporation (MCD)?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of McDonald’s Corporation (NYSE:MCD).

McDonald’s Corporation (NYSE:MCD) shareholders have witnessed an increase in hedge fund interest lately. McDonald’s Corporation (NYSE:MCD) was in 67 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 84. There were 62 hedge funds in our database with MCD positions at the end of the fourth quarter. Our calculations also showed that MCD isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Frank Brosens of Taconic Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. 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 homepage. Now we’re going to review the recent hedge fund action surrounding McDonald’s Corporation (NYSE:MCD).

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

Heading into the second quarter of 2021, a total of 67 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MCD over the last 23 quarters. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

More specifically, Arrowstreet Capital was the largest shareholder of McDonald’s Corporation (NYSE:MCD), with a stake worth $574.1 million reported as of the end of March. Trailing Arrowstreet Capital was D E Shaw, which amassed a stake valued at $457.2 million. Citadel Investment Group, Two Sigma Advisors, 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 Stormborn Capital Management allocated the biggest weight to McDonald’s Corporation (NYSE:MCD), around 7.4% of its 13F portfolio. 3G Sahana Capital Management is also relatively very bullish on the stock, earmarking 5.69 percent of its 13F equity portfolio to MCD.

Now, specific money managers have jumped into McDonald’s Corporation (NYSE:MCD) headfirst. Suvretta Capital Management, managed by Aaron Cowen, initiated the largest position in McDonald’s Corporation (NYSE:MCD). Suvretta Capital Management had $214 million invested in the company at the end of the quarter. Alexander Mitchell’s Scopus Asset Management also initiated a $134.5 million position during the quarter. The other funds with new positions in the stock are Jack Woodruff’s Candlestick Capital Management, Munir Javeri’s 3G Sahana Capital Management, and Frank Brosens’s Taconic Capital.

Let’s now review hedge fund activity in other stocks similar to McDonald’s Corporation (NYSE:MCD). We will take a look at Pinduoduo Inc. (NASDAQ:PDD), Wells Fargo & Company (NYSE:WFC), Danaher Corporation (NYSE:DHR), Medtronic plc (NYSE:MDT), Novo Nordisk A/S (NYSE:NVO), Costco Wholesale Corporation (NASDAQ:COST), and T-Mobile US, Inc. (NASDAQ:TMUS). This group of stocks’ market caps are similar to MCD’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 67.9 hedge funds with bullish positions and the average amount invested in these stocks was $5596 million. That figure was $3784 million in MCD’s case. T-Mobile US, Inc. (NASDAQ:TMUS) is the most popular stock in this table. On the other hand Novo Nordisk A/S (NYSE:NVO) is the least popular one with only 23 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 overall hedge fund sentiment score for MCD is 63.3. 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 25.8% in 2021 through August 6th and surpassed the market again by 6.7 percentage points. Unfortunately MCD wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); MCD investors were disappointed as the stock returned 6% since the end of March (through 8/6) 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 most of these stocks already outperformed the market in 2021.

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