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Is Yum! Brands, Inc. (YUM) Going to Burn These Hedge Funds?

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·6 min read
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In this article we will analyze whether Yum! Brands, Inc. (NYSE:YUM) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

Is Yum! Brands, Inc. (NYSE:YUM) a first-rate investment today? The smart money was buying. The number of long hedge fund bets advanced by 3 lately. Yum! Brands, Inc. (NYSE:YUM) was in 35 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 65. Our calculations also showed that YUM isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 32 hedge funds in our database with YUM positions at the end of the first quarter.

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. 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 79 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.

Ryan Tolkin, CIO of Schonfeld Strategic Advisors

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. 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 check out the latest hedge fund action encompassing Yum! Brands, Inc. (NYSE:YUM).

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

At the end of the second quarter, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the previous quarter. The graph below displays the number of hedge funds with bullish position in YUM over the last 24 quarters. With hedgies' capital changing hands, there exists a few notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Is YUM A Good Stock To Buy?
Is YUM A Good Stock To Buy?

More specifically, 0 was the largest shareholder of Yum! Brands, Inc. (NYSE:YUM), with a stake worth $265.7 million reported as of the end of June. Trailing Alkeon Capital Management was Arrowstreet Capital, which amassed a stake valued at $108.3 million. Bridgewater Associates, Senator Investment Group, 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 Kehrs Ridge Capital allocated the biggest weight to Yum! Brands, Inc. (NYSE:YUM), around 2.82% of its 13F portfolio. Masterton Capital Management is also relatively very bullish on the stock, earmarking 2.24 percent of its 13F equity portfolio to YUM.

Consequently, key hedge funds have jumped into Yum! Brands, Inc. (NYSE:YUM) headfirst. Kehrs Ridge Capital, managed by Brian Scudieri, assembled the most outsized position in Yum! Brands, Inc. (NYSE:YUM). Kehrs Ridge Capital had $6.9 million invested in the company at the end of the quarter. Qing Li's Sciencast Management also initiated a $3.2 million position during the quarter. The other funds with brand new YUM positions are Jinghua Yan's TwinBeech Capital, Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors, and D. E. Shaw's D E Shaw.

Let's go over hedge fund activity in other stocks similar to Yum! Brands, Inc. (NYSE:YUM). We will take a look at Archer Daniels Midland Company (NYSE:ADM), Hilton Worldwide Holdings Inc (NYSE:HLT), Zimmer Biomet Holdings Inc (NYSE:ZBH), Rockwell Automation Inc. (NYSE:ROK), Chewy, Inc. (NYSE:CHWY), Stanley Black & Decker, Inc. (NYSE:SWK), and First Republic Bank (NYSE:FRC). This group of stocks' market caps resemble YUM's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ADM,41,837799,7 HLT,45,4558478,-2 ZBH,48,1785063,-2 ROK,25,535840,-1 CHWY,43,634747,11 SWK,44,987529,11 FRC,34,1226197,-7 Average,40,1509379,2.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 40 hedge funds with bullish positions and the average amount invested in these stocks was $1509 million. That figure was $652 million in YUM's case. Zimmer Biomet Holdings Inc (NYSE:ZBH) is the most popular stock in this table. On the other hand Rockwell Automation Inc. (NYSE:ROK) is the least popular one with only 25 bullish hedge fund positions. Yum! Brands, Inc. (NYSE:YUM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for YUM is 45.9. 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 21.8% in 2021 through October 11th and still beat the market by 4.4 percentage points. A small number of hedge funds were also right about betting on YUM as the stock returned 6.5% since the end of the second quarter (through 10/11) and outperformed the market by an even larger margin.

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