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Hedge Funds Are Selling ADT Inc. (ADT)

In this article you are going to find out whether hedge funds think ADT Inc. (NYSE:ADT) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

ADT Inc. (NYSE:ADT) investors should be aware of a decrease in hedge fund interest of late. ADT was in 20 hedge funds’ portfolios at the end of March. There were 21 hedge funds in our database with ADT holdings at the end of the previous quarter. Our calculations also showed that ADT isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

If you’d ask most stock holders, hedge funds are assumed to be unimportant, old financial tools of yesteryear. While there are more than 8000 funds trading at the moment, Our experts look at the crème de la crème of this group, around 850 funds. These money managers orchestrate the majority of the hedge fund industry’s total asset base, and by following their finest equity investments, Insider Monkey has determined a few investment strategies that have historically outpaced Mr. Market. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Bill Miller

Bill Miller of Miller Value Partners

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a look at the latest hedge fund action regarding ADT Inc. (NYSE:ADT).

Hedge fund activity in ADT Inc. (NYSE:ADT)

At Q1’s end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ADT over the last 18 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

Among these funds, Miller Value Partners held the most valuable stake in ADT Inc. (NYSE:ADT), which was worth $63.4 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $13.3 million worth of shares. Greenhouse Funds, Millennium Management, and Renaissance Technologies 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 Miller Value Partners allocated the biggest weight to ADT Inc. (NYSE:ADT), around 4.08% of its 13F portfolio. Greenhouse Funds is also relatively very bullish on the stock, setting aside 2.57 percent of its 13F equity portfolio to ADT.

Judging by the fact that ADT Inc. (NYSE:ADT) has faced falling interest from the entirety of the hedge funds we track, we can see that there is a sect of fund managers that decided to sell off their entire stakes in the first quarter. It’s worth mentioning that David Gallo’s Valinor Management LLC dumped the largest investment of all the hedgies watched by Insider Monkey, comprising about $0.7 million in stock, and Matthew Tewksbury’s Stevens Capital Management was right behind this move, as the fund dropped about $0.3 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 1 funds in the first quarter.

Let’s check out hedge fund activity in other stocks similar to ADT Inc. (NYSE:ADT). We will take a look at Williams-Sonoma, Inc. (NYSE:WSM), Floor & Decor Holdings, Inc. (NYSE:FND), Empire State Realty Trust Inc (NYSE:ESRT), and Seaboard Corporation (NYSE:SEB). This group of stocks’ market valuations resemble ADT’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WSM 26 182192 -3
FND 23 400020 -4
ESRT 16 151926 -2
SEB 15 108625 -3
Average 20 210691 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $211 million. That figure was $99 million in ADT’s case. Williams-Sonoma, Inc. (NYSE:WSM) is the most popular stock in this table. On the other hand Seaboard Corporation (NYSE:SEB) is the least popular one with only 15 bullish hedge fund positions. ADT Inc. (NYSE:ADT) is not the least popular stock in this group but hedge fund interest is still below average. 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 12.2% in 2020 through June 17th and still beat the market by 14.8 percentage points. A small number of hedge funds were also right about betting on ADT as the stock returned 97.6% during the second quarter and outperformed the market by an even larger margin.

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