Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not Restaurant Brands International Inc (NYSE:QSR) makes for a good investment right now.
Is Restaurant Brands International Inc (NYSE:QSR) a buy here? Money managers are becoming less confident. The number of bullish hedge fund positions shrunk by 7 recently. Our calculations also showed that QSR isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). QSR was in 52 hedge funds' portfolios at the end of December. There were 59 hedge funds in our database with QSR holdings at the end of the previous quarter.
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 41 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_339354" align="aligncenter" width="399"] Matthew Drapkin of Becker Drapkin Management[/caption]
Keeping this in mind let's go over the key hedge fund action surrounding Restaurant Brands International Inc (NYSE:QSR).
How are hedge funds trading Restaurant Brands International Inc (NYSE:QSR)?
At Q4's end, a total of 52 of the hedge funds tracked by Insider Monkey were long this stock, a change of -12% from the previous quarter. By comparison, 37 hedge funds held shares or bullish call options in QSR a year ago. With hedgies' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
More specifically, Pershing Square was the largest shareholder of Restaurant Brands International Inc (NYSE:QSR), with a stake worth $961.9 million reported as of the end of September. Trailing Pershing Square was Berkshire Hathaway, which amassed a stake valued at $538.1 million. Steadfast Capital Management, D E Shaw, and Two Sigma Advisors 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 Pershing Square allocated the biggest weight to Restaurant Brands International Inc (NYSE:QSR), around 14.68% of its 13F portfolio. MIC Capital Partners is also relatively very bullish on the stock, earmarking 8.74 percent of its 13F equity portfolio to QSR.
Because Restaurant Brands International Inc (NYSE:QSR) has experienced bearish sentiment from the smart money, logic holds that there exists a select few fund managers who sold off their full holdings in the third quarter. At the top of the heap, Aaron Cowen's Suvretta Capital Management dropped the biggest investment of the 750 funds monitored by Insider Monkey, valued at an estimated $202.3 million in stock. Steve Cohen's fund, Point72 Asset Management, also sold off its stock, about $84.4 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 7 funds in the third quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Restaurant Brands International Inc (NYSE:QSR) but similarly valued. These stocks are Freeport-McMoRan Inc. (NYSE:FCX), Ameren Corporation (NYSE:AEE), Western Digital Corporation (NASDAQ:WDC), and Zoom Video Communications, Inc. (NASDAQ:ZM). This group of stocks' market values resemble QSR's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FCX,55,1663058,14 AEE,31,1678648,-1 WDC,49,869922,9 ZM,28,858177,-5 Average,40.75,1267451,4.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 40.75 hedge funds with bullish positions and the average amount invested in these stocks was $1267 million. That figure was $3119 million in QSR's case. Freeport-McMoRan Inc. (NYSE:FCX) is the most popular stock in this table. On the other hand Zoom Video Communications, Inc. (NASDAQ:ZM) is the least popular one with only 28 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. 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 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately QSR wasn't nearly as popular as these 10 stocks and hedge funds that were betting on QSR were disappointed as the stock returned -23.3% 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. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.