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Were Hedge Funds Right About McDonald’s Corporation (MCD)?

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  • MCD

The Insider Monkey team has completed processing the quarterly 13F filings for the June quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards McDonald's Corporation (NYSE:MCD).

McDonald's Corporation (NYSE:MCD) investors should pay attention to a decrease in enthusiasm from smart money recently. McDonald's Corporation (NYSE:MCD) was in 66 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 84. There were 67 hedge funds in our database with MCD positions at the end of the first quarter. Our calculations also showed that MCD isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.

Phill Gross Adage Capital Phillip Gross
Phill Gross Adage Capital Phillip Gross

Phillip Gross of Adage Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. We check out articles like Warren Buffett's 3 money saving tips that provide inflation and volatility hedges. We go through lists like the 10 best EV 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. With all of this in mind let's review the new hedge fund action encompassing McDonald's Corporation (NYSE:MCD).

Do Hedge Funds Think MCD Is A Good Stock To Buy Now?

Heading into the third quarter of 2021, a total of 66 of the hedge funds tracked by Insider Monkey were long this stock, a change of -1% from one quarter earlier. By comparison, 57 hedge funds held shares or bullish call options in MCD a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is MCD A Good Stock To Buy?
Is MCD A Good Stock To Buy?

The largest stake in McDonald's Corporation (NYSE:MCD) was held by Arrowstreet Capital, which reported holding $485.1 million worth of stock at the end of June. It was followed by Bridgewater Associates with a $322.6 million position. Other investors bullish on the company included Citadel Investment Group, Citadel Investment Group, and Adage Capital Management. In terms of the portfolio weights assigned to each position 3G Sahana Capital Management allocated the biggest weight to McDonald's Corporation (NYSE:MCD), around 5.84% of its 13F portfolio. North Fourth Asset Management is also relatively very bullish on the stock, designating 2.8 percent of its 13F equity portfolio to MCD.

Because McDonald's Corporation (NYSE:MCD) has experienced bearish sentiment from the aggregate hedge fund industry, it's easy to see that there lies a certain "tier" of funds that slashed their full holdings by the end of the second quarter. It's worth mentioning that Aaron Cowen's Suvretta Capital Management dumped the largest stake of the "upper crust" of funds monitored by Insider Monkey, valued at an estimated $214 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also sold off its stock, about $131.2 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 1 funds by the end of the second quarter.

Let's now take a look at hedge fund activity in other stocks similar to McDonald's Corporation (NYSE:MCD). These stocks are Morgan Stanley (NYSE:MS), Medtronic plc (NYSE:MDT), SAP SE (NYSE:SAP), QUALCOMM, Incorporated (NASDAQ:QCOM), Pinduoduo Inc. (NASDAQ:PDD), AstraZeneca plc (NYSE:AZN), and Philip Morris International Inc. (NYSE:PM). This group of stocks' market values are similar to MCD's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MS,69,5347633,-10 MDT,68,3390607,3 SAP,17,1603691,-2 QCOM,72,4047519,-1 PDD,49,5276960,-7 AZN,37,2772286,3 PM,46,5973614,-2 Average,51.1,4058901,-2.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 51.1 hedge funds with bullish positions and the average amount invested in these stocks was $4059 million. That figure was $2715 million in MCD's case. QUALCOMM, Incorporated (NASDAQ:QCOM) is the most popular stock in this table. On the other hand SAP SE (NYSE:SAP) is the least popular one with only 17 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. Our overall hedge fund sentiment score for MCD is 72.1. 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. 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 26.3% in 2021 through October 29th and still beat the market by 2.3 percentage points. Hedge funds were also right about betting on MCD as the stock returned 6.9% since the end of Q2 (through 10/29) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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Disclosure: None. This article was originally published at Insider Monkey.