The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Adobe Inc. (NASDAQ:ADBE) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.
Adobe Inc. (NASDAQ:ADBE) has seen a decrease in hedge fund interest in recent months. That's a bit expected as hedge fund sentiment towards ADBE hit its all time high at the end of March as the decline in stock prices attracted a buying opportunity for hedge funds. Our calculations also showed that ADBE still managed to rank #19 among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
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 56 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.
Peter Rathjens of Arrowstreet Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out ideas like this under-the-radar stock to identify the next tenbagger. Currently, investors are pessimistic about commercial real estate investments. So, we are checking out this contrarian play to diversify our market exposure. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind let's review the recent hedge fund action regarding Adobe Inc. (NASDAQ:ADBE).
Hedge fund activity in Adobe Inc. (NASDAQ:ADBE)
Heading into the third quarter of 2020, a total of 104 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ADBE over the last 20 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Fisher Asset Management, managed by Ken Fisher, holds the most valuable position in Adobe Inc. (NASDAQ:ADBE). Fisher Asset Management has a $2.3265 billion position in the stock, comprising 2.3% of its 13F portfolio. The second largest stake is held by Rajiv Jain of GQG Partners, with a $795 million position; 3.6% of its 13F portfolio is allocated to the stock. Some other peers that hold long positions encompass Lone Pine Capital, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and John Armitage's Egerton Capital Limited. In terms of the portfolio weights assigned to each position Keywise Capital Management allocated the biggest weight to Adobe Inc. (NASDAQ:ADBE), around 12.78% of its 13F portfolio. Center Lake Capital is also relatively very bullish on the stock, setting aside 11.68 percent of its 13F equity portfolio to ADBE.
Due to the fact that Adobe Inc. (NASDAQ:ADBE) has witnessed falling interest from the aggregate hedge fund industry, we can see that there was a specific group of funds who sold off their entire stakes heading into Q3. Intriguingly, Tim Hurd and Ed Magnus's BlueSpruce Investments dropped the largest investment of the 750 funds tracked by Insider Monkey, totaling an estimated $159.3 million in stock. Renaissance Technologies, also dropped its stock, about $67.6 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 11 funds heading into Q3.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Adobe Inc. (NASDAQ:ADBE) but similarly valued. These stocks are Bank of America Corporation (NYSE:BAC), Paypal Holdings Inc (NASDAQ:PYPL), The Walt Disney Company (NYSE:DIS), Tesla Inc. (NASDAQ:TSLA), Netflix, Inc. (NASDAQ:NFLX), Novartis AG (NYSE:NVS), and Cisco Systems, Inc. (NASDAQ:CSCO). All of these 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 BAC,91,24357766,-4 PYPL,144,11406883,26 DIS,105,6819839,3 TSLA,63,5560864,2 NFLX,113,13487546,4 NVS,21,1942870,-9 CSCO,59,2904558,1 Average,85.1,9497189,3.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 85.1 hedge funds with bullish positions and the average amount invested in these stocks was $9.5 billion. That figure was $9.7 billion in ADBE's case. Paypal Holdings Inc (NASDAQ:PYPL) is the most popular stock in this table. On the other hand Novartis AG (NYSE:NVS) is the least popular one with only 21 bullish hedge fund positions. Adobe Inc. (NASDAQ:ADBE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ADBE is currently 72.9. 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. 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 28.2% in 2020 through August 24th but beat the market by 20.6 percentage points. Unfortunately ADBE wasn't nearly as popular as these 10 stocks and hedge funds that were betting on ADBE were disappointed as the stock returned 9.4% 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.
Get real-time email alerts: Follow Adobe Inc. (NASDAQ:ADBE)
Disclosure: None. This article was originally published at Insider Monkey.