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Did Hedge Funds Make The Right Move In Dumping Mondelez International Inc (MDLZ) ?

Reymerlyn Martin

Is Mondelez International Inc (NASDAQ:MDLZ) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Mondelez International Inc (NASDAQ:MDLZ) has experienced a decrease in activity from the world's largest hedge funds recently. MDLZ was in 45 hedge funds' portfolios at the end of December. There were 46 hedge funds in our database with MDLZ positions at the end of the previous quarter. Our calculations also showed that MDLZ isn't among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 32 percentage points since May 2014 through March 12, 2019 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Mario Gabelli with cereal box

Let's take a gander at the key hedge fund action surrounding Mondelez International Inc (NASDAQ:MDLZ).

How have hedgies been trading Mondelez International Inc (NASDAQ:MDLZ)?

At the end of the fourth quarter, a total of 45 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -2% from the second quarter of 2018. By comparison, 55 hedge funds held shares or bullish call options in MDLZ a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

MDLZ_mar2019

More specifically, Trian Partners was the largest shareholder of Mondelez International Inc (NASDAQ:MDLZ), with a stake worth $753.6 million reported as of the end of September. Trailing Trian Partners was D E Shaw, which amassed a stake valued at $327.1 million. GAMCO Investors, Citadel Investment Group, and AQR Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.

Since Mondelez International Inc (NASDAQ:MDLZ) has faced bearish sentiment from the smart money, logic holds that there exists a select few fund managers that slashed their positions entirely in the third quarter. At the top of the heap, Robert Rodriguez and Steven Romick's First Pacific Advisors LLC sold off the largest position of all the hedgies watched by Insider Monkey, worth an estimated $232.9 million in stock. Daniel S. Och's fund, OZ Management, also dumped its stock, about $156.3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 1 funds in the third quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Mondelez International Inc (NASDAQ:MDLZ) but similarly valued. We will take a look at Automatic Data Processing, Inc. (NASDAQ:ADP), Eni SpA (NYSE:E), Tesla Inc. (NASDAQ:TSLA), and VMware, Inc. (NYSE:VMW). This group of stocks' market valuations match MDLZ's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ADP,42,2979929,7 E,7,87961,0 TSLA,47,878615,16 VMW,32,1806279,-6 Average,32,1438196,4.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 32 hedge funds with bullish positions and the average amount invested in these stocks was $1438 million. That figure was $1740 million in MDLZ's case. Tesla Inc. (NASDAQ:TSLA) is the most popular stock in this table. On the other hand Eni SpA (NYSE:E) is the least popular one with only 7 bullish hedge fund positions. Mondelez International Inc (NASDAQ:MDLZ) is not the most popular stock in this group but hedge fund interest is still above average.Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also right about betting on MDLZ, though not to the same extent, as the stock returned 19.4% and outperformed the market as well.

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

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