Were Hedge Funds Right About NIKE, Inc. (NKE)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding NIKE, Inc. (NYSE:NKE).

NIKE, Inc. (NYSE:NKE) investors should be aware of a decrease in hedge fund interest of late. NIKE, Inc. (NYSE:NKE) was in 71 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 81. Our calculations also showed that NKE isn’t 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.

To most market participants, hedge funds are viewed as underperforming, outdated investment vehicles of the past. While there are more than 8000 funds with their doors open today, Our experts look at the bigwigs of this group, about 850 funds. These hedge fund managers orchestrate most of the hedge fund industry’s total capital, and by keeping track of their best picks, Insider Monkey has revealed a few investment strategies that have historically beaten the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy exceeded 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 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Dan Loeb THIRD POINT

Dan Loeb of Third Point

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 go over the key hedge fund action encompassing NIKE, Inc. (NYSE:NKE).

How have hedgies been trading NIKE, Inc. (NYSE:NKE)?

At second quarter’s end, a total of 71 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in NKE over the last 20 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.

More specifically, Fisher Asset Management was the largest shareholder of NIKE, Inc. (NYSE:NKE), with a stake worth $633 million reported as of the end of September. Trailing Fisher Asset Management was Ako Capital, which amassed a stake valued at $174.7 million. GuardCap Asset Management, Arrowstreet Capital, and AQR Capital Management 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 Immersion Capital allocated the biggest weight to NIKE, Inc. (NYSE:NKE), around 8.12% of its 13F portfolio. Broad Peak Investment Holdings is also relatively very bullish on the stock, earmarking 8 percent of its 13F equity portfolio to NKE.

Seeing as NIKE, Inc. (NYSE:NKE) has faced a decline in interest from the smart money, we can see that there exists a select few hedge funds that slashed their full holdings last quarter. It’s worth mentioning that Daniel Sundheim’s D1 Capital Partners sold off the biggest position of the 750 funds monitored by Insider Monkey, comprising about $83.5 million in stock, and Andrew Immerman and Jeremy Schiffman’s Palestra Capital Management was right behind this move, as the fund cut about $48 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 9 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as NIKE, Inc. (NYSE:NKE) but similarly valued. These stocks are The Unilever Group (NYSE:UL), Thermo Fisher Scientific Inc. (NYSE:TMO), AstraZeneca plc (NASDAQ:AZN), Amgen, Inc. (NASDAQ:AMGN), China Mobile Limited (NYSE:CHL), McDonald’s Corporation (NYSE:MCD), and Accenture Plc (NYSE:ACN). This group of stocks’ market valuations resemble NKE’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UL 13 149078 0
TMO 73 4525711 -7
AZN 38 1920506 12
AMGN 51 1794209 -1
CHL 9 456289 -2
MCD 57 1356732 -9
ACN 44 1080127 -5
Average 40.7 1611807 -1.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.7 hedge funds with bullish positions and the average amount invested in these stocks was $1612 million. That figure was $2603 million in NKE’s case. Thermo Fisher Scientific Inc. (NYSE:TMO) is the most popular stock in this table. On the other hand China Mobile Limited (NYSE:CHL) is the least popular one with only 9 bullish hedge fund positions. NIKE, Inc. (NYSE:NKE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NKE is 70.7. 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 NKE as the stock returned 30.8% 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.