How Adobe Inc and Other Hedge Fund Favorites Performed in Q2

Insider Monkey tracks hedge funds, billionaires, and prominent value investors for a very simple reason: their consensus picks generally outperform the market. We aren’t the only research shop broadcasting this fact using a bullhorn. Here is what strategist Ben Snider said in Goldman Sachs’ periodic hedge fund report:

“Despite the strong track record of popular hedge fund stocks, investors often view high ownership as a negative trait when evaluating stock prospects. Clients often ask us to include hedge fund ownership data in stock screens, expressing a preference for buying ‘under-owned’ stocks.”

“In fact, during the past decade hedge fund popularity has been a more useful criterion for selecting stocks than valuations…. The signals from hedge fund popularity and valuation have been particularly useful in combination, especially for investors with slightly longer investment horizons. During the past decade, popular stocks have generally outperformed unpopular stocks across both 3- and 12-month investment horizons” Snider concluded.

It may sound like I am tooting my own horn, but Insider Monkey’s quarterly newsletter is actually superior to Goldman’s report. That’s because we separated the hedge fund favorites into long and short buckets. Our long bucket of hedge fund favorites returned 34.1% in the first half of 2019, whereas our short bucket of hedge fund favorites gained 21.4% during the same period. Hedge funds’ favorite top 20 stocks, on the other hand, returned 24% so far in 2019. You could have beaten the S&P 500 Index funds by 5.7 percentage points by investing in hedge funds’ top 20 picks in 2019, whereas you could have outperformed the index funds by 15.8 percentage points if you invested in our top hedge fund picks. You can try out our newsletter free of charge for 14 days to see hedge funds’ latest best stock picks.

The #20 most popular stock among the 743 hedge funds tracked by Insider Monkey was Adobe Inc. (NASDAQ:ADBE). Adobe was the 16th most popular stock among hedge funds at the end of December (see the 30 most popular stocks among hedge funds). Hedge funds have never been this bullish on Adobe. This is usually a very bullish signal. We observed this in other stocks like Roku, Control4 Corp, Uniqure, Avalara, Lindblad Expeditions, and DisneyRoku returned returned 45%, Control4 Corp returned 40%, Uniqure and Avalara delivered a 30% gain each, and Disney outperformed the market by nearly 20 percentage points in Q2.  Lindblad Expedition investors also experienced a relatively modest 15.2% gain during the same period.

We have to warn you against indiscriminately imitating hedge funds’ all stock picks. Hedge funds’ top 20 stock picks outperformed the S&P 500 Index funds by 5.7 percentage points this year, but hedge funds’ top 500 stock picks had the same return as the S&P 500 Index this quarter. Investing in a hedge fund’s 35th best idea doesn’t give you the same return as investing in a hedge fund’s best idea.


Philippe Laffont of Coatue Management

We’re going to analyze the key hedge fund action encompassing Adobe Systems Incorporated (NASDAQ:ADBE).

How have hedgies been trading Adobe Systems Incorporated (NASDAQ:ADBE)?

At the end of the first quarter, a total of 86 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 2% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in ADBE over the last 15 quarters. So, let’s find out 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, Stephen Mandel’s Lone Pine Capital has the biggest position in Adobe, worth close to $1.2067 billion, accounting for 7.1% of its total 13F portfolio. The second largest stake is held by Cliff Asness of AQR Capital Management, with a $770.3 million position; 0.8% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that are bullish comprise John Armitage’s Egerton Capital Limited, Philippe Laffont’s Coatue Management and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

As industrywide interest jumped, key money managers have been driving this bullishness. Palestra Capital Management, managed by Andrew Immerman and Jeremy Schiffman, created the most outsized position in Adobe Inc. (NASDAQ:ADBE). Palestra Capital Management had $110.2 million invested in the company at the end of the quarter. Keith Meister’s Corvex Capital also initiated a $71.9 million position during the quarter. The other funds with new positions in the stock are George Soros’s Soros Fund Management, David Tepper’s Appaloosa Management LP, and Sander Gerber’s Hudson Bay Capital Management.

Let’s go over hedge fund activity in other stocks similar to Adobe. We will take a look at Eli Lilly and Company (NYSE:LLY), International Business Machines Corp. (NYSE:IBM), Novo Nordisk A/S (NYSE:NVO), and Medtronic, Inc. (NYSE:MDT). All of these stocks’ market caps are closest to ADBE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LLY 44 2163009 -3
IBM 46 2215447 -2
NVO 25 2388157 7
MDT 50 2124479 -5
Average 41.25 2222773 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 41.25 hedge funds with bullish positions and the average amount invested in these stocks was $2223 million. That figure was $8966 million in ADBE’s case. Medtronic, Inc. (NYSE:MDT) is the most popular stock in this table. On the other hand Novo Nordisk A/S (NYSE:NVO) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Adobe Inc. (NASDAQ:ADBE) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.4% in Q2 and outperformed the S&P 500 ETF (SPY) by more than 2 percentage points. Hedge funds were also right about betting on ADBE as the stock returned 10.6% during the same period and outperformed the market by an even larger margin. Adobe shares also gained more than 30% this year. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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