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Hedge Funds Dumped SAP AG (SAP) Before Coronavirus

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s analyze whether SAP AG (NYSE:SAP) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.

SAP AG (NYSE:SAP) has experienced a decrease in enthusiasm from smart money lately. Our calculations also showed that SAP isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Ken Fisher FISHER ASSET MANAGEMENT

Ken Fisher of Fisher Asset Management

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 read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. With all of this in mind we’re going to take a gander at the fresh hedge fund action regarding SAP AG (NYSE:SAP).

Hedge fund activity in SAP AG (NYSE:SAP)

Heading into the first quarter of 2020, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the third quarter of 2019. On the other hand, there were a total of 14 hedge funds with a bullish position in SAP a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Is SAP A Good Stock To Buy?

Among these funds, Fisher Asset Management held the most valuable stake in SAP AG (NYSE:SAP), which was worth $1025.6 million at the end of the third quarter. On the second spot was GQG Partners which amassed $335.5 million worth of shares. Holocene Advisors, Elliott Management, and Arrowstreet Capital 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 Akaris Global Partners allocated the biggest weight to SAP AG (NYSE:SAP), around 10.15% of its 13F portfolio. Unio Capital is also relatively very bullish on the stock, dishing out 5.4 percent of its 13F equity portfolio to SAP.

Due to the fact that SAP AG (NYSE:SAP) has faced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there exists a select few hedgies who sold off their full holdings in the third quarter. It’s worth mentioning that Eric W. Mandelblatt and Gaurav Kapadia’s Soroban Capital Partners said goodbye to the largest investment of all the hedgies tracked by Insider Monkey, worth about $4.1 million in call options. Gavin Saitowitz and Cisco J. del Valle’s fund, Springbok Capital, also cut its call options, about $1.8 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 4 funds in the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as SAP AG (NYSE:SAP) but similarly valued. These stocks are Anheuser-Busch InBev SA/NV (NYSE:BUD), Adobe Inc. (NASDAQ:ADBE), HSBC Holdings plc (NYSE:HSBC), and NIKE, Inc. (NYSE:NKE). This group of stocks’ market valuations resemble SAP’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BUD 23 1478846 2
ADBE 106 9784116 4
HSBC 18 1118976 2
NKE 81 2510260 12
Average 57 3723050 5

View table here if you experience formatting issues.

As you can see these stocks had an average of 57 hedge funds with bullish positions and the average amount invested in these stocks was $3723 million. That figure was $1764 million in SAP’s case. Adobe Inc. (NASDAQ:ADBE) 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 SAP AG (NYSE:SAP) is even less popular than HSBC. Hedge funds dodged a bullet by taking a bearish stance towards SAP. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but managed to beat the market by 3.1 percentage points. Unfortunately SAP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SAP investors were disappointed as the stock returned -15.9% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in Q1.

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

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