How Did Adobe Inc. (ADBE) Compare Against Hedge Fund Darlings in 2019?

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Adobe Inc. (NASDAQ:ADBE) and compare its performance to hedge funds’ consensus picks in 2019.

Adobe Inc. (NASDAQ:ADBE) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 92 hedge funds’ portfolios at the end of the third quarter of 2019. At the end of this article we will also compare ADBE to other stocks including, inc. (NYSE:CRM), BP plc (NYSE:BP), and International Business Machines Corporation (NYSE:IBM) to get a better sense of its popularity.

If you’d ask most stock holders, hedge funds are perceived as worthless, outdated investment vehicles of yesteryear. While there are over 8000 funds with their doors open today, Our researchers choose to focus on the elite of this group, around 750 funds. It is estimated that this group of investors command the majority of the hedge fund industry’s total asset base, and by tracking their first-class stock picks, Insider Monkey has unearthed a few investment strategies that have historically outstripped Mr. Market. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .


Philippe Laffont of Coatue Management

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now we’re going to check out the latest hedge fund action regarding Adobe Inc. (NASDAQ:ADBE).

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

At Q3’s end, a total of 92 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in ADBE over the last 17 quarters. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Ken Fisher’s Fisher Asset Management has the biggest position in Adobe Inc. (NASDAQ:ADBE), worth close to $1.127 billion, accounting for 1.2% of its total 13F portfolio. Sitting at the No. 2 spot is Lone Pine Capital which holds a $981.7 million position; 5.8% of its 13F portfolio is allocated to the stock. Some other peers with similar optimism encompass John Armitage’s Egerton Capital Limited, Gabriel Plotkin’s Melvin Capital Management and Philippe Laffont’s Coatue Management. In terms of the portfolio weights assigned to each position Two Creeks Capital Management allocated the biggest weight to Adobe Inc. (NASDAQ:ADBE), around 9.77% of its 13F portfolio. BlueSpruce Investments is also relatively very bullish on the stock, earmarking 9.7 percent of its 13F equity portfolio to ADBE.

Because Adobe Inc. (NASDAQ:ADBE) has experienced falling interest from hedge fund managers, it’s safe to say that there lies a certain “tier” of hedge funds that elected to cut their full holdings by the end of the third quarter. Intriguingly, Dmitry Balyasny’s Balyasny Asset Management cut the biggest position of all the hedgies watched by Insider Monkey, comprising an estimated $62.3 million in stock. Brandon Haley’s fund, Holocene Advisors, also dropped its stock, about $39.6 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Adobe Inc. (NASDAQ:ADBE) but similarly valued. We will take a look at, inc. (NYSE:CRM), BP plc (NYSE:BP), International Business Machines Corporation (NYSE:IBM), and Costco Wholesale Corporation (NASDAQ:COST). This group of stocks’ market values resemble ADBE’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CRM 102 9433280 20
BP 36 1617309 7
IBM 42 1569607 -3
COST 51 3861914 11
Average 57.75 4120528 8.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 57.75 hedge funds with bullish positions and the average amount invested in these stocks was $4121 million. That figure was $8325 million in ADBE’s case., inc. (NYSE:CRM) is the most popular stock in this table. On the other hand BP plc (NYSE:BP) is the least popular one with only 36 bullish hedge fund positions. Adobe Inc. (NASDAQ:ADBE) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on ADBE as the stock returned 45.4% in 2019 (through December 23rd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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.