In this article we will take a look at whether hedge funds think Restaurant Brands International Inc (NYSE:QSR) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Is Restaurant Brands International Inc (NYSE:QSR) going to take off soon? Investors who are in the know are in a pessimistic mood. The number of long hedge fund positions decreased by 11 lately. Our calculations also showed that QSR 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.
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 S&P 500 ETFs by more than 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 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 stocks that are in our short portfolio.
[caption id="attachment_339739" align="aligncenter" width="399"] Ricky Sandler of Eminence Capital[/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 glance at the key hedge fund action encompassing Restaurant Brands International Inc (NYSE:QSR).
How are hedge funds trading Restaurant Brands International Inc (NYSE:QSR)?
Heading into the second quarter of 2020, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards QSR over the last 18 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Pershing Square held the most valuable stake in Restaurant Brands International Inc (NYSE:QSR), which was worth $603.8 million at the end of the third quarter. On the second spot was Berkshire Hathaway which amassed $337.8 million worth of shares. Soroban Capital Partners, Maverick Capital, and Eminence 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 Clearfield Capital allocated the biggest weight to Restaurant Brands International Inc (NYSE:QSR), around 10.84% of its 13F portfolio. Pershing Square is also relatively very bullish on the stock, designating 9.19 percent of its 13F equity portfolio to QSR.
Due to the fact that Restaurant Brands International Inc (NYSE:QSR) has witnessed falling interest from the aggregate hedge fund industry, we can see that there lies a certain "tier" of hedge funds who were dropping their positions entirely last quarter. Intriguingly, Robert Pitts's Steadfast Capital Management said goodbye to the biggest stake of the "upper crust" of funds followed by Insider Monkey, comprising an estimated $211.3 million in stock. Robert Pohly's fund, Samlyn Capital, also dumped its stock, about $92.9 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 11 funds last quarter.
Let's also examine hedge fund activity in other stocks similar to Restaurant Brands International Inc (NYSE:QSR). These stocks are Lennar Corporation (NYSE:LEN), Duke Realty Corporation (NYSE:DRE), Jack Henry & Associates, Inc. (NASDAQ:JKHY), and Omnicom Group Inc. (NYSE:OMC). This group of stocks' market valuations are closest to QSR's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LEN,57,1121019,-6 DRE,16,64897,-8 JKHY,27,277076,-2 OMC,31,327865,9 Average,32.75,447714,-1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.75 hedge funds with bullish positions and the average amount invested in these stocks was $448 million. That figure was $2250 million in QSR's case. Lennar Corporation (NYSE:LEN) is the most popular stock in this table. On the other hand Duke Realty Corporation (NYSE:DRE) is the least popular one with only 16 bullish hedge fund positions. Restaurant Brands International Inc (NYSE:QSR) is not the most popular stock in this group but hedge fund interest is still above average. 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 8.3% in 2020 through the end of May but still beat the market by 13.2 percentage points. Hedge funds were also right about betting on QSR as the stock returned 36.3% in Q2 (through the end of May) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.