We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Melvin Capital's recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Adobe Inc. (NASDAQ:ADBE).
Is Adobe Inc. (NASDAQ:ADBE) going to take off soon? The best stock pickers were in a pessimistic mood. The number of long hedge fund bets retreated by 7 lately. Adobe Inc. (NASDAQ:ADBE) was in 107 hedge funds' portfolios at the end of March. The all time high for this statistic is 115. Our calculations also showed that ADBE ranked 16th among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 114 hedge funds in our database with ADBE holdings at the end of December.
To most traders, hedge funds are seen as underperforming, old financial tools of the past. While there are more than 8000 funds with their doors open today, We look at the crème de la crème of this club, about 850 funds. These investment experts shepherd the majority of all hedge funds' total asset base, and by keeping an eye on their matchless investments, Insider Monkey has deciphered several investment strategies that have historically defeated the S&P 500 index. Insider Monkey's flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .
Charles Akre of Akre Capital Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell 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 take a gander at the fresh hedge fund action encompassing Adobe Inc. (NASDAQ:ADBE).
Do Hedge Funds Think ADBE Is A Good Stock To Buy Now?
At the end of March, a total of 107 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the previous quarter. By comparison, 115 hedge funds held shares or bullish call options in ADBE a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ken Fisher's Fisher Asset Management has the number one position in Adobe Inc. (NASDAQ:ADBE), worth close to $2.8511 billion, accounting for 2% of its total 13F portfolio. On Fisher Asset Management's heels is Lone Pine Capital, holding a $1.2466 billion position; 4.5% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors with similar optimism consist of Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Charles Akre's Akre Capital Management and Rajiv Jain's GQG Partners. In terms of the portfolio weights assigned to each position Center Lake Capital allocated the biggest weight to Adobe Inc. (NASDAQ:ADBE), around 13.2% of its 13F portfolio. Keywise Capital Management is also relatively very bullish on the stock, dishing out 11.7 percent of its 13F equity portfolio to ADBE.
Seeing as Adobe Inc. (NASDAQ:ADBE) has faced a decline in interest from the smart money, logic holds that there lies a certain "tier" of money managers that elected to cut their positions entirely in the first quarter. Interestingly, Gabriel Plotkin's Melvin Capital Management dumped the biggest investment of the "upper crust" of funds tracked by Insider Monkey, totaling close to $341.7 million in stock. Dan Loeb's fund, Third Point, also sold off its stock, about $227.6 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 7 funds in the first quarter.
Let's also examine hedge fund activity in other stocks similar to Adobe Inc. (NASDAQ:ADBE). These stocks are The Coca-Cola Company (NYSE:KO), Cisco Systems, Inc. (NASDAQ:CSCO), Toyota Motor Corporation (NYSE:TM), AT&T Inc. (NYSE:T), Abbott Laboratories (NYSE:ABT), NIKE, Inc. (NYSE:NKE), and Oracle Corporation (NYSE:ORCL). This group of stocks' market caps match ADBE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KO,61,24903946,-1 CSCO,59,5194074,-1 TM,18,824174,7 T,63,2701777,5 ABT,65,5136552,1 NKE,78,5176711,-4 ORCL,52,2888444,0 Average,56.6,6689383,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 56.6 hedge funds with bullish positions and the average amount invested in these stocks was $6689 million. That figure was $12112 million in ADBE's case. NIKE, Inc. (NYSE:NKE) is the most popular stock in this table. On the other hand Toyota Motor Corporation (NYSE:TM) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Adobe Inc. (NASDAQ:ADBE) is more popular among hedge funds. Our overall hedge fund sentiment score for ADBE is 90.4. 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 returned 17.2% in 2021 through June 11th but still managed to beat the market by 3.3 percentage points. Hedge funds were also right about betting on ADBE as the stock returned 13.9% since the end of March (through 6/11) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.
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