Did Hedge Funds Drop The Ball On The Coca-Cola Company (KO) ?

Nina Todic

Mon, Jun 10, 2019, 6:28 PM

Hedge funds and other investment firms run by legendary investors like Israel Englander, Jeffrey Talpins and Ray Dalio are entrusted to manage billions of dollars of accredited investors' money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.

Is The Coca-Cola Company (NYSE:KO) a buy right now? Investors who are in the know are reducing their bets on the stock. The number of long hedge fund bets were cut by 5 in recent months. Our calculations also showed that ko isn't among the 30 most popular stocks among hedge funds. KO was in 48 hedge funds' portfolios at the end of March. There were 53 hedge funds in our database with KO holdings at the end of the previous quarter.

In the eyes of most shareholders, hedge funds are seen as slow, old investment tools of the past. While there are over 8000 funds with their doors open at the moment, We choose to focus on the bigwigs of this club, around 750 funds. It is estimated that this group of investors manage most of all hedge funds' total asset base, and by keeping an eye on their matchless equity investments, Insider Monkey has brought to light many investment strategies that have historically outstripped the S&P 500 index. Insider Monkey's flagship hedge fund strategy surpassed the S&P 500 index by around 5 percentage points a year since its inception in May 2014 through the end of May. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 30.9% since February 2017 (through May 30th) even though the market was up nearly 24% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 11.9% in less than a couple of weeks whereas our long picks outperformed the market by 2 percentage points in this volatile 2 week period.

We're going to review the key hedge fund action encompassing The Coca-Cola Company (NYSE:KO).

What have hedge funds been doing with The Coca-Cola Company (NYSE:KO)?

At the end of the first quarter, a total of 48 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in KO over the last 15 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

The largest stake in The Coca-Cola Company (NYSE:KO) was held by Berkshire Hathaway, which reported holding $18744 million worth of stock at the end of March. It was followed by Yacktman Asset Management with a $616.8 million position. Other investors bullish on the company included Adage Capital Management, Renaissance Technologies, and Citadel Investment Group.

Due to the fact that The Coca-Cola Company (NYSE:KO) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there exists a select few fund managers that slashed their full holdings heading into Q3. Interestingly, Principal Global Investors's Columbus Circle Investors dumped the biggest investment of the 700 funds tracked by Insider Monkey, totaling an estimated $37.7 million in stock. Stephen J. Errico's fund, Locust Wood Capital Advisers, also dumped its stock, about $22.2 million worth. These moves are important to note, as total hedge fund interest dropped by 5 funds heading into Q3.

Let's also examine hedge fund activity in other stocks similar to The Coca-Cola Company (NYSE:KO). These stocks are The Walt Disney Company (NYSE:DIS), Oracle Corporation (NYSE:ORCL), Comcast Corporation (NASDAQ:CMCSA), and PepsiCo, Inc. (NASDAQ:PEP). This group of stocks' market valuations resemble KO's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DIS,114,7045572,43 ORCL,52,4994743,-2 CMCSA,87,6279870,4 PEP,51,4490981,-2 Average,76,5702792,10.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 76 hedge funds with bullish positions and the average amount invested in these stocks was $5703 million. That figure was $20680 million in KO's case. The Walt Disney Company (NYSE:DIS) is the most popular stock in this table. On the other hand PepsiCo, Inc. (NASDAQ:PEP) is the least popular one with only 51 bullish hedge fund positions. Compared to these stocks The Coca-Cola Company (NYSE:KO) is even less popular than PEP. Hedge funds clearly dropped the ball on KO as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. A small number of hedge funds were also right about betting on KO as the stock returned 5.1% during the same period and outperformed the market by an even larger margin.

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

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