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Hedge Funds’ #16 Stock Pick Debunked Naysayers

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going even though the mainstream financial media journalists don’t agree with this approach. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 835 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 December 31st. In this article we look at what those investors think of Adobe Inc. (NASDAQ:ADBE).

Adobe Inc. (NASDAQ:ADBE) was in 106 hedge funds’ portfolios at the end of December. ADBE has experienced an increase in hedge fund sentiment recently. There were 102 hedge funds in our database with ADBE positions at the end of the previous quarter. Our calculations also showed that ADBE ranked 16th among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

If you listen to the mainstream financial media, you should avoid stock picking and invest in low-cost index funds. This is indeed what you should do if you want to generate average returns. Mainstream financial media journalists try to make you believe that it isn’t possible to pick winners and losers, and you should ignore the stock picks of hedge fund managers. You may remember reading an article in the WSJ that said “random dart throwing monkeys beat hedge fund stars”. What they fail to tell you is that the top 5 hedge fund stocks returned more than 30% since the end of 2018 and beat the S&P 500 Index by nearly 25 percentage points. You can’t explain this kind of outperformance by luck or coincidence. WSJ will need an army of monkeys to throw darts and tens of thousands of attempts to match these returns.

COATUE MANAGEMENT

Philippe Laffont of Coatue Management

We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations We are probably at the peak of the COVID-19 pandemic, so we check out this biotech investor’s coronavirus picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a gander at the recent hedge fund action surrounding Adobe Inc. (NASDAQ:ADBE).

What does smart money think about Adobe Inc. (NASDAQ:ADBE)?

At Q4’s end, a total of 106 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from one quarter earlier. On the other hand, there were a total of 84 hedge funds with a bullish position in ADBE a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

More specifically, Fisher Asset Management was the largest shareholder of Adobe Inc. (NASDAQ:ADBE), with a stake worth $1361.5 million reported as of the end of September. Trailing Fisher Asset Management was Lone Pine Capital, which amassed a stake valued at $939.1 million. D E Shaw, Egerton Capital Limited, and Coatue 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 BlueSpruce Investments allocated the biggest weight to Adobe Inc. (NASDAQ:ADBE), around 12.92% of its 13F portfolio. Center Lake Capital is also relatively very bullish on the stock, dishing out 12.9 percent of its 13F equity portfolio to ADBE.

With a general bullishness amongst the heavyweights, specific money managers have jumped into Adobe Inc. (NASDAQ:ADBE) headfirst. Balyasny Asset Management, managed by Dmitry Balyasny, established the largest position in Adobe Inc. (NASDAQ:ADBE). Balyasny Asset Management had $71.1 million invested in the company at the end of the quarter. James Crichton’s Hitchwood Capital Management also initiated a $66 million position during the quarter. The other funds with new positions in the stock are Gregg Moskowitz’s Interval Partners, Adam Parker’s Center Lake Capital, and Robert Joseph Caruso’s Select Equity Group.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Adobe Inc. (NASDAQ:ADBE) but similarly valued. These stocks are HSBC Holdings plc (NYSE:HSBC), NIKE, Inc. (NYSE:NKE), Abbott Laboratories (NYSE:ABT), and Medtronic plc (NYSE:MDT). This group of stocks’ market values match ADBE’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HSBC 18 1118976 2
NKE 81 2510260 12
ABT 62 2055531 -3
MDT 66 2500872 10
Average 56.75 2046410 5.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 56.75 hedge funds with bullish positions and the average amount invested in these stocks was $2046 million. That figure was $9784 million in ADBE’s case. NIKE, Inc. (NYSE:NKE) is the most popular stock in this table. On the other hand HSBC Holdings plc (NYSE:HSBC) 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 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 lost 1.0% in 2020 through April 20th but still managed to beat the market by 11 percentage points. Hedge funds were also right about betting on ADBE as the stock returned 4.6% so far in 2020 (through April 20th) 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.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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