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Yum China Holdings, Inc. (YUMC): Hedge Funds In Wait-and-See Mode

Asma UL Husna

The 700+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the third quarter, which unveil their equity positions as of September 30. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Yum China Holdings, Inc. (NYSE:YUMC).

Is Yum China Holdings, Inc. (NYSE:YUMC) ready to rally soon? The best stock pickers are turning bullish. The number of bullish hedge fund bets inched up by 1 lately. Our calculations also showed that YUMC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). YUMC was in 29 hedge funds' portfolios at the end of the third quarter of 2019. There were 28 hedge funds in our database with YUMC positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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_339612" align="aligncenter" width="450"] Kerr Neilson of Platinum Asset Management[/caption]

Kerr Neilson of Platinum Asset Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's analyze the new hedge fund action surrounding Yum China Holdings, Inc. (NYSE:YUMC).

How are hedge funds trading Yum China Holdings, Inc. (NYSE:YUMC)?

Heading into the fourth quarter of 2019, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards YUMC over the last 17 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

YUMC_dec2019

Among these funds, Renaissance Technologies held the most valuable stake in Yum China Holdings, Inc. (NYSE:YUMC), which was worth $62.9 million at the end of the third quarter. On the second spot was GuardCap Asset Management which amassed $61.4 million worth of shares. Platinum Asset Management, GLG Partners, and AQR Capital Management 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 Ariose Capital allocated the biggest weight to Yum China Holdings, Inc. (NYSE:YUMC), around 24.79% of its portfolio. Tiger Pacific Capital is also relatively very bullish on the stock, dishing out 7.5 percent of its 13F equity portfolio to YUMC.

As one would reasonably expect, key money managers were leading the bulls' herd. Weld Capital Management, managed by Minhua Zhang, assembled the most outsized position in Yum China Holdings, Inc. (NYSE:YUMC). Weld Capital Management had $0.3 million invested in the company at the end of the quarter. David Harding's Winton Capital Management also made a $0.2 million investment in the stock during the quarter.

Let's check out hedge fund activity in other stocks similar to Yum China Holdings, Inc. (NYSE:YUMC). These stocks are Martin Marietta Materials, Inc. (NYSE:MLM), Omnicom Group Inc. (NYSE:OMC), Arch Capital Group Ltd. (NASDAQ:ACGL), and Equifax Inc. (NYSE:EFX). All of these stocks' market caps match YUMC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MLM,40,2550137,0 OMC,24,478571,1 ACGL,21,1306954,-2 EFX,26,1728610,-8 Average,27.75,1516068,-2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.75 hedge funds with bullish positions and the average amount invested in these stocks was $1516 million. That figure was $466 million in YUMC's case. Martin Marietta Materials, Inc. (NYSE:MLM) is the most popular stock in this table. On the other hand Arch Capital Group Ltd. (NASDAQ:ACGL) is the least popular one with only 21 bullish hedge fund positions. Yum China Holdings, Inc. (NYSE:YUMC) 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately YUMC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on YUMC were disappointed as the stock returned -1.7% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 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.

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