Were Hedge Funds Right About Adobe Inc. (ADBE)?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks aren’t doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to Adobe Inc. (NASDAQ:ADBE) changed recently.

Adobe Inc. (NASDAQ:ADBE) has experienced a decrease in hedge fund interest lately. Adobe Inc. (NASDAQ:ADBE) was in 104 hedge funds’ portfolios at the end of June. The all time high for this statistics is 115. Our calculations also showed that ADBE ranks 19th among the 30 most popular stocks among hedge funds (click for Q2 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.

In the 21st century investor’s toolkit there are plenty of signals shareholders have at their disposal to assess stocks. A couple of the most useful signals are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the top picks of the top fund managers can outpace the market by a superb margin (see the details here).

John Armitage Egerton Capital

John Armitage of Egerton Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind let’s take a glance at the latest hedge fund action encompassing Adobe Inc. (NASDAQ:ADBE).

How have hedgies been trading Adobe Inc. (NASDAQ:ADBE)?

At second quarter’s end, a total of 104 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ADBE over the last 20 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Ken Fisher’s Fisher Asset Management has the most valuable position in Adobe Inc. (NASDAQ:ADBE), worth close to $2.3265 billion, amounting to 2.3% of its total 13F portfolio. Coming in second is Rajiv Jain of GQG Partners, with a $795 million position; the fund has 3.6% of its 13F portfolio invested in the stock. Remaining professional money managers with similar optimism comprise Lone Pine Capital, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and John Armitage’s Egerton Capital Limited. In terms of the portfolio weights assigned to each position Keywise Capital Management allocated the biggest weight to Adobe Inc. (NASDAQ:ADBE), around 12.78% of its 13F portfolio. Center Lake Capital is also relatively very bullish on the stock, setting aside 11.68 percent of its 13F equity portfolio to ADBE.

Judging by the fact that Adobe Inc. (NASDAQ:ADBE) has faced bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there exists a select few money managers who were dropping their full holdings heading into Q3. Intriguingly, Tim Hurd and Ed Magnus’s BlueSpruce Investments sold off the biggest position of the 750 funds watched by Insider Monkey, worth about $159.3 million in stock. Renaissance Technologies, also dropped its stock, about $67.6 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 11 funds heading into Q3.

Let’s now review hedge fund activity in other stocks similar to Adobe Inc. (NASDAQ:ADBE). These stocks are Bank of America Corporation (NYSE:BAC), Paypal Holdings Inc (NASDAQ:PYPL), The Walt Disney Company (NYSE:DIS), Tesla Inc. (NASDAQ:TSLA), Netflix, Inc. (NASDAQ:NFLX), Novartis AG (NYSE:NVS), and Cisco Systems, Inc. (NASDAQ:CSCO). This group of stocks’ market valuations are similar to ADBE’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BAC 91 24357766 -4
PYPL 144 11406883 26
DIS 105 6819839 3
TSLA 63 5560864 2
NFLX 113 13487546 4
NVS 21 1942870 -9
CSCO 59 2904558 1
Average 85.1 9497189 3.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 85.1 hedge funds with bullish positions and the average amount invested in these stocks was $9497 million. That figure was $9651 million in ADBE’s case. Paypal Holdings Inc (NASDAQ:PYPL) is the most popular stock in this table. On the other hand Novartis AG (NYSE:NVS) is the least popular one with only 21 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 overall hedge fund sentiment score for ADBE is 72.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 29.2% in 2020 through October 16th and still beat the market by 19.7 percentage points. Hedge funds were also right about betting on ADBE as the stock returned 15.5% since the end of Q2 (through 10/16) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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