In this article we will check out the progression of hedge fund sentiment towards McDonald's Corporation (NYSE:MCD) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
McDonald's Corporation (NYSE:MCD) was in 66 hedge funds' portfolios at the end of the first quarter of 2020. MCD has seen an increase in enthusiasm from smart money in recent months. There were 57 hedge funds in our database with MCD positions at the end of the previous quarter. Our calculations also showed that MCD 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_530612" align="aligncenter" width="400"] Frank Brosens of Taconic Capital[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Europe is set to become the world’s largest cannabis market, so we checked out this European marijuana stock pitch. Also, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this analyst’s “corona catalyst plays“. 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 surrounding McDonald's Corporation (NYSE:MCD).
How have hedgies been trading McDonald's Corporation (NYSE:MCD)?
Heading into the second quarter of 2020, a total of 66 of the hedge funds tracked by Insider Monkey were long this stock, a change of 16% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MCD over the last 18 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.
The largest stake in McDonald's Corporation (NYSE:MCD) was held by D E Shaw, which reported holding $158 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $155.5 million position. Other investors bullish on the company included AQR Capital Management, Adage Capital Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position MIK Capital allocated the biggest weight to McDonald's Corporation (NYSE:MCD), around 5.81% of its 13F portfolio. Atreides Management is also relatively very bullish on the stock, earmarking 3.43 percent of its 13F equity portfolio to MCD.
Consequently, some big names were breaking ground themselves. Renaissance Technologies, founded by Jim Simons, initiated the biggest position in McDonald's Corporation (NYSE:MCD). Renaissance Technologies had $74.1 million invested in the company at the end of the quarter. Anthony Bozza's Lakewood Capital Management also made a $37.8 million investment in the stock during the quarter. The following funds were also among the new MCD investors: Frank Brosens's Taconic Capital, Gavin Baker's Atreides Management, and Kamyar Khajavi's MIK Capital.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as McDonald's Corporation (NYSE:MCD) but similarly valued. We will take a look at Medtronic plc (NYSE:MDT), Amgen, Inc. (NASDAQ:AMGN), NextEra Energy, Inc. (NYSE:NEE), and Wells Fargo & Company (NYSE:WFC). This group of stocks' market values are closest to MCD's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MDT,59,1839749,-7 AMGN,52,2056537,-6 NEE,52,1436389,6 WFC,76,12935257,-3 Average,59.75,4566983,-2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 59.75 hedge funds with bullish positions and the average amount invested in these stocks was $4567 million. That figure was $954 million in MCD's case. Wells Fargo & Company (NYSE:WFC) is the most popular stock in this table. On the other hand Amgen, Inc. (NASDAQ:AMGN) is the least popular one with only 52 bullish hedge fund positions. McDonald's Corporation (NYSE:MCD) is not the most popular stock in this group but hedge fund interest is still above average. 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 7.9% in 2020 through May 22nd but beat the market by 15.6 percentage points. Unfortunately MCD wasn't nearly as popular as these 10 stocks and hedge funds that were betting on MCD were disappointed as the stock returned 11.5% 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.
Disclosure: None. This article was originally published at Insider Monkey.