Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don't make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards McDonald's Corporation (NYSE:MCD) to find out whether there were any major changes in hedge funds' views.
McDonald's Corporation (NYSE:MCD) shareholders have witnessed an increase in activity from the world's largest hedge funds recently. McDonald's Corporation (NYSE:MCD) was in 67 hedge funds' portfolios at the end of March. The all time high for this statistic is 84. There were 62 hedge funds in our database with MCD holdings at the end of December. Our calculations also showed that MCD isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).
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 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
Frank Brosens of Taconic Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind we're going to analyze the latest hedge fund action encompassing McDonald's Corporation (NYSE:MCD).
Do Hedge Funds Think MCD Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 67 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from the fourth quarter of 2020. By comparison, 66 hedge funds held shares or bullish call options in MCD a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
Among these funds, Arrowstreet Capital held the most valuable stake in McDonald's Corporation (NYSE:MCD), which was worth $574.1 million at the end of the fourth quarter. On the second spot was D E Shaw which amassed $457.2 million worth of shares. Citadel Investment Group, Two Sigma Advisors, and Citadel Investment Group 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 Stormborn Capital Management allocated the biggest weight to McDonald's Corporation (NYSE:MCD), around 7.4% of its 13F portfolio. 3G Sahana Capital Management is also relatively very bullish on the stock, setting aside 5.69 percent of its 13F equity portfolio to MCD.
Now, key hedge funds have been driving this bullishness. Suvretta Capital Management, managed by Aaron Cowen, assembled the largest position in McDonald's Corporation (NYSE:MCD). Suvretta Capital Management had $214 million invested in the company at the end of the quarter. Alexander Mitchell's Scopus Asset Management also initiated a $134.5 million position during the quarter. The following funds were also among the new MCD investors: Jack Woodruff's Candlestick Capital Management, Munir Javeri's 3G Sahana Capital Management, and Frank Brosens's Taconic Capital.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as McDonald's Corporation (NYSE:MCD) but similarly valued. These stocks are Pinduoduo Inc. (NASDAQ:PDD), Wells Fargo & Company (NYSE:WFC), Danaher Corporation (NYSE:DHR), Medtronic plc (NYSE:MDT), Novo Nordisk A/S (NYSE:NVO), Costco Wholesale Corporation (NASDAQ:COST), and T-Mobile US, Inc. (NASDAQ:TMUS). This group of stocks' market values match MCD's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PDD,56,6293871,2 WFC,96,7454581,-3 DHR,81,5796963,0 MDT,65,3627546,6 NVO,23,2929727,0 COST,56,4014769,-5 TMUS,98,9055738,-5 Average,67.9,5596171,-0.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 67.9 hedge funds with bullish positions and the average amount invested in these stocks was $5596 million. That figure was $3784 million in MCD's case. T-Mobile US, Inc. (NASDAQ:TMUS) is the most popular stock in this table. On the other hand Novo Nordisk A/S (NYSE:NVO) is the least popular one with only 23 bullish hedge fund positions. McDonald's Corporation (NYSE:MCD) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MCD is 63.3. 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 negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th and surpassed the market again by 3.3 percentage points. Unfortunately MCD wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); MCD investors were disappointed as the stock returned 6.3% since the end of March (through 6/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.
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Disclosure: None. This article was originally published at Insider Monkey.