In this article you are going to find out whether hedge funds think Yum! Brands, Inc. (NYSE:YUM) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Is Yum! Brands, Inc. (NYSE:YUM) going to take off soon? The best stock pickers are getting more bullish. The number of long hedge fund positions advanced by 5 in recent months. Our calculations also showed that YUM isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 44 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_670980" align="aligncenter" width="399"] Gabriel Plotkin of Melvin Capital Management[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this successful trader’s “corona catalyst plays“. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to take a look at the new hedge fund action regarding Yum! Brands, Inc. (NYSE:YUM).
How are hedge funds trading Yum! Brands, Inc. (NYSE:YUM)?
At the end of the first quarter, a total of 41 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from the previous quarter. The graph below displays the number of hedge funds with bullish position in YUM over the last 18 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Alkeon Capital Management was the largest shareholder of Yum! Brands, Inc. (NYSE:YUM), with a stake worth $91.9 million reported as of the end of September. Trailing Alkeon Capital Management was Citadel Investment Group, which amassed a stake valued at $78.4 million. Two Sigma Advisors, Melvin Capital Management, and Millennium Management 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 Becker Drapkin Management allocated the biggest weight to Yum! Brands, Inc. (NYSE:YUM), around 3.95% of its 13F portfolio. Six Columns Capital is also relatively very bullish on the stock, designating 3.39 percent of its 13F equity portfolio to YUM.
As aggregate interest increased, key hedge funds were breaking ground themselves. Melvin Capital Management, managed by Gabriel Plotkin, initiated the biggest position in Yum! Brands, Inc. (NYSE:YUM). Melvin Capital Management had $61.7 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $31.8 million position during the quarter. The other funds with brand new YUM positions are Brad Stephens's Six Columns Capital, Jeff Lignelli's Incline Global Management, and Steve Cohen's Point72 Asset Management.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Yum! Brands, Inc. (NYSE:YUM) but similarly valued. We will take a look at Johnson Controls International plc (NYSE:JCI), Kellogg Company (NYSE:K), Waste Connections, Inc. (NYSE:WCN), and Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA). This group of stocks' market valuations match YUM's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position JCI,37,1063858,0 K,37,610512,7 WCN,33,464735,-4 BBVA,8,142085,0 Average,28.75,570298,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $570 million. That figure was $559 million in YUM's case. Johnson Controls International plc (NYSE:JCI) is the most popular stock in this table. On the other hand Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Yum! Brands, Inc. (NYSE:YUM) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on YUM as the stock returned 31.6% so far in Q2 (through the end of May) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.