We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards The Coca-Cola Company (NYSE:KO) and determine whether hedge funds skillfully traded this stock.
The Coca-Cola Company (NYSE:KO) has seen an increase in activity from the world's largest hedge funds lately. The Coca-Cola Company (NYSE:KO) was in 59 hedge funds' portfolios at the end of June. The all time high for this statistics is 62. Our calculations also showed that KO isn't among the 30 most popular stocks among hedge funds (click for Q2 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 56 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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Warren Buffett of Berkshire Hathaway
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let's view the key hedge fund action encompassing The Coca-Cola Company (NYSE:KO).
Hedge fund activity in The Coca-Cola Company (NYSE:KO)
At the end of June, a total of 59 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards KO over the last 20 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Berkshire Hathaway held the most valuable stake in The Coca-Cola Company (NYSE:KO), which was worth $17872 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $327.1 million worth of shares. Two Sigma Advisors, D E Shaw, and Yacktman Asset 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 Berkshire Hathaway allocated the biggest weight to The Coca-Cola Company (NYSE:KO), around 8.83% of its 13F portfolio. Bronson Point Partners is also relatively very bullish on the stock, designating 7.44 percent of its 13F equity portfolio to KO.
As one would reasonably expect, key money managers were breaking ground themselves. Candlestick Capital Management, managed by Jack Woodruff, assembled the most valuable position in The Coca-Cola Company (NYSE:KO). Candlestick Capital Management had $71.5 million invested in the company at the end of the quarter. Greg Poole's Echo Street Capital Management also made a $23.1 million investment in the stock during the quarter. The other funds with brand new KO positions are James Dinan's York Capital Management, Jay Genzer's Thames Capital Management, and Matthew Hulsizer's PEAK6 Capital Management.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as The Coca-Cola Company (NYSE:KO) but similarly valued. We will take a look at Exxon Mobil Corporation (NYSE:XOM), PepsiCo, Inc. (NYSE:PEP), Pfizer Inc. (NYSE:PFE), Comcast Corporation (NASDAQ:CMCSA), Toyota Motor Corporation (NYSE:TM), AbbVie Inc (NYSE:ABBV), and Oracle Corporation (NASDAQ:ORCL). This group of stocks' market caps resemble KO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position XOM,53,1114752,-12 PEP,53,3156792,-4 PFE,66,2139163,-1 CMCSA,80,7207135,-3 TM,13,719379,2 ABBV,89,6226917,8 ORCL,49,2312027,1 Average,57.6,3268024,-1.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 57.6 hedge funds with bullish positions and the average amount invested in these stocks was $3268 million. That figure was $20093 million in KO's case. AbbVie Inc (NYSE:ABBV) is the most popular stock in this table. On the other hand Toyota Motor Corporation (NYSE:TM) is the least popular one with only 13 bullish hedge fund positions. The Coca-Cola Company (NYSE:KO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for KO is 67.8. 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 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 gained 28.2% in 2020 through August 24th but beat the market by 20.6 percentage points. Unfortunately KO wasn't nearly as popular as these 10 stocks and hedge funds that were betting on KO were disappointed as the stock returned 7.4% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.