Adtalem Global Education Inc. (ATGE): Hedge Funds In Wait-and-See Mode

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st. We at Insider Monkey have made an extensive database of more than 866 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Adtalem Global Education Inc. (NYSE:ATGE) based on those filings.

Hedge fund interest in Adtalem Global Education Inc. (NYSE:ATGE) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that ATGE isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). At the end of this article we will also compare ATGE to other stocks including Belden Inc. (NYSE:BDC), Carpenter Technology Corporation (NYSE:CRS), and Super Micro Computer, Inc. (NASDAQ:SMCI) to get a better sense of its popularity.

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 115 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.

David Brown Hawk Ridge Partners

David Brown of Hawk Ridge Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery 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. Now we’re going to take a look at the recent hedge fund action regarding Adtalem Global Education Inc. (NYSE:ATGE).

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

At Q1’s end, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ATGE over the last 23 quarters. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Ariel Investments, managed by John W. Rogers, holds the most valuable position in Adtalem Global Education Inc. (NYSE:ATGE). Ariel Investments has a $122.4 million position in the stock, comprising 1.2% of its 13F portfolio. The second largest stake is held by Madison Avenue Partners, led by Eli Samaha, holding a $56.7 million position; 17.4% of its 13F portfolio is allocated to the company. Other peers with similar optimism contain Vadim Rubinchik’s Brightlight Capital, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Madison Avenue Partners allocated the biggest weight to Adtalem Global Education Inc. (NYSE:ATGE), around 17.37% of its 13F portfolio. Brightlight Capital is also relatively very bullish on the stock, dishing out 13.86 percent of its 13F equity portfolio to ATGE.

Due to the fact that Adtalem Global Education Inc. (NYSE:ATGE) has experienced bearish sentiment from the smart money, we can see that there is a sect of money managers who sold off their full holdings by the end of the first quarter. Intriguingly, Charles de Vaulx’s International Value Advisers said goodbye to the largest investment of the “upper crust” of funds followed by Insider Monkey, totaling an estimated $37.8 million in stock, and David Rosen’s Rubric Capital Management was right behind this move, as the fund said goodbye to about $14.1 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Adtalem Global Education Inc. (NYSE:ATGE) but similarly valued. These stocks are Belden Inc. (NYSE:BDC), Carpenter Technology Corporation (NYSE:CRS), Super Micro Computer, Inc. (NASDAQ:SMCI), Madison Square Garden Entertainment Corp. (NYSE:MSGE), Burford Capital Limited (NYSE:BUR), La-Z-Boy Incorporated (NYSE:LZB), and Columbia Property Trust Inc (NYSE:CXP). This group of stocks’ market values resemble ATGE’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BDC 17 163439 1
CRS 14 64400 0
SMCI 21 447309 1
MSGE 23 324971 -4
BUR 6 30046 -1
LZB 24 110904 11
CXP 12 62630 -1
Average 16.7 171957 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.7 hedge funds with bullish positions and the average amount invested in these stocks was $172 million. That figure was $329 million in ATGE’s case. La-Z-Boy Incorporated (NYSE:LZB) is the most popular stock in this table. On the other hand Burford Capital Limited (NYSE:BUR) is the least popular one with only 6 bullish hedge fund positions. Adtalem Global Education Inc. (NYSE:ATGE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ATGE is 74.8. 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 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 23.8% in 2021 through July 16th and beat the market again by 7.7 percentage points. Unfortunately ATGE wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on ATGE were disappointed as the stock returned -10.9% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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