Were Hedge Funds Right About The Kraft Heinz Company (KHC)?

In this article we are going to use hedge fund sentiment as a tool and determine whether The Kraft Heinz Company (NASDAQ:KHC) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

The Kraft Heinz Company (NASDAQ:KHC) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 33 hedge funds’ portfolios at the end of the second quarter of 2021. Our calculations also showed that KHC isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Prudential Public Limited Company (NYSE:PUK), Southern Copper Corporation (NYSE:SCCO), and KLA Corporation (NASDAQ:KLAC) to gather more data points.

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 79 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.

Donald Sussman of Paloma Partners

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 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. With all of this in mind let’s take a look at the key hedge fund action encompassing The Kraft Heinz Company (NASDAQ:KHC).

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

Heading into the third quarter of 2021, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 35 hedge funds held shares or bullish call options in KHC a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

Among these funds, Berkshire Hathaway held the most valuable stake in The Kraft Heinz Company (NASDAQ:KHC), which was worth $13279.4 million at the end of the second quarter. On the second spot was Bridgewater Associates which amassed $86 million worth of shares. Scion Asset Management, Arrowstreet Capital, and D E Shaw 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 Berkshire Hathaway allocated the biggest weight to The Kraft Heinz Company (NASDAQ:KHC), around 4.53% of its 13F portfolio. Scion Asset Management is also relatively very bullish on the stock, dishing out 2.79 percent of its 13F equity portfolio to KHC.

Due to the fact that The Kraft Heinz Company (NASDAQ:KHC) has faced bearish sentiment from the smart money, we can see that there exists a select few hedgies that elected to cut their positions entirely in the second quarter. Intriguingly, Simon Sadler’s Segantii Capital sold off the biggest investment of all the hedgies tracked by Insider Monkey, comprising about $19.2 million in stock. Paul Tudor Jones’s fund, Tudor Investment Corp, also dumped its stock, about $3.7 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at 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 Prudential Public Limited Company (NYSE:PUK), Southern Copper Corporation (NYSE:SCCO), KLA Corporation (NASDAQ:KLAC), America Movil SAB de CV (NYSE:AMX), América Móvil, S.A.B. de C.V. (NYSE:AMOV), Roper Technologies Inc. (NYSE:ROP), and Palantir Technologies Inc. (NYSE:PLTR). This group of stocks’ market caps are similar to KHC’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.9 hedge funds with bullish positions and the average amount invested in these stocks was $712 million. That figure was $13577 million in KHC’s case. KLA Corporation (NASDAQ:KLAC) is the most popular stock in this table. On the other hand América Móvil, S.A.B. de C.V. (NYSE:AMOV) is the least popular one with only 1 bullish hedge fund positions. The Kraft Heinz Company (NASDAQ:KHC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for KHC is 57.9. 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 positive signal but 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 through November 5th and beat the market again by 3.1 percentage points. Unfortunately KHC wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on KHC were disappointed as the stock returned -6.2% since the end of June (through 11/5) 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 many of these stocks already outperformed the market since 2019.

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