Were Hedge Funds Right About Yum China Holdings, Inc. (YUMC)?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Yum China Holdings, Inc. (NYSE:YUMC)? The smart money sentiment can provide an answer to this question.

Yum China Holdings, Inc. (NYSE:YUMC) has experienced a decrease in support from the world’s most elite money managers recently. Yum China Holdings, Inc. (NYSE:YUMC) was in 32 hedge funds’ portfolios at the end of the second quarter of 2021. 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 Q2 rankings).

Today there are a multitude of tools investors can use to value their holdings. A couple of the less known tools are hedge fund and insider trading signals. We have shown that, historically, those who follow the best picks of the top investment managers can beat their index-focused peers by a very impressive amount (see the details here). Also, our monthly newsletter’s portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

Fred DiSanto of Ancora Advisors

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 we’re going to take a glance at the key hedge fund action regarding Yum China Holdings, Inc. (NYSE:YUMC).

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

At the end of the second quarter, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the first quarter of 2020. By comparison, 35 hedge funds held shares or bullish call options in YUMC a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, 0 held the most valuable stake in Yum China Holdings, Inc. (NYSE:YUMC), which was worth $461 million at the end of the second quarter. On the second spot was Tremblant Capital which amassed $103.4 million worth of shares. Antipodes Partners, Platinum Asset Management, and Tiger Pacific Capital 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 Tiger Pacific Capital allocated the biggest weight to Yum China Holdings, Inc. (NYSE:YUMC), around 6.82% of its 13F portfolio. GuardCap Asset Management is also relatively very bullish on the stock, dishing out 6.65 percent of its 13F equity portfolio to YUMC.

Due to the fact that Yum China Holdings, Inc. (NYSE:YUMC) has faced falling interest from hedge fund managers, we can see that there were a few hedge funds who were dropping their positions entirely heading into Q3. It’s worth mentioning that Hyder Ahmad’s Broad Peak Investment Holdings dropped the largest position of the 750 funds monitored by Insider Monkey, totaling an estimated $78.9 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund dumped about $6.2 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 2 funds heading into Q3.

Let’s now take a look at hedge fund activity in other stocks similar to Yum China Holdings, Inc. (NYSE:YUMC). These stocks are Lufax Holding Ltd (NYSE:LU), Garmin Ltd. (NASDAQ:GRMN), Franco-Nevada Corporation (NYSE:FNV), Delta Air Lines, Inc. (NYSE:DAL), Arista Networks Inc (NYSE:ANET), Eversource Energy (NYSE:ES), and Interactive Brokers Group, Inc. (NASDAQ:IBKR). All of these stocks’ market caps match YUMC’s market cap.

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As you can see these stocks had an average of 30.4 hedge funds with bullish positions and the average amount invested in these stocks was $743 million. That figure was $914 million in YUMC’s case. Delta Air Lines, Inc. (NYSE:DAL) is the most popular stock in this table. On the other hand Lufax Holding Ltd (NYSE:LU) is the least popular one with only 19 bullish hedge fund positions. Yum China Holdings, Inc. (NYSE:YUMC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for YUMC is 49.3. 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 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 YUMC wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on YUMC were disappointed as the stock returned -13.8% 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.