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

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 835 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article we look at what those investors think of NIKE, Inc. (NYSE:NKE).

NIKE, Inc. (NYSE:NKE) investors should pay attention to an increase in activity from the world’s largest hedge funds of late. NKE was in 81 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 69 hedge funds in our database with NKE positions at the end of the previous quarter. Our calculations also showed that NKE ranked 30th among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Frank Brosens Taconic Capital

Frank Brosens of Taconic Capital

We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations We are probably at the peak of the COVID-19 pandemic, so we check out this biotech investor’s coronavirus picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a look at the recent hedge fund action encompassing NIKE, Inc. (NYSE:NKE).

What does smart money think about NIKE, Inc. (NYSE:NKE)?

At Q4’s end, a total of 81 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in NKE over the last 18 quarters. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

More specifically, AQR Capital Management was the largest shareholder of NIKE, Inc. (NYSE:NKE), with a stake worth $381.3 million reported as of the end of September. Trailing AQR Capital Management was Ako Capital, which amassed a stake valued at $257.9 million. GLG Partners, Point72 Asset Management, and Adage 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 Broad Peak Investment Holdings allocated the biggest weight to NIKE, Inc. (NYSE:NKE), around 11.67% of its 13F portfolio. Banbury Partners is also relatively very bullish on the stock, setting aside 8.13 percent of its 13F equity portfolio to NKE.

As one would reasonably expect, key hedge funds were leading the bulls’ herd. Ako Capital, managed by Nicolai Tangen, established the most outsized position in NIKE, Inc. (NYSE:NKE). Ako Capital had $257.9 million invested in the company at the end of the quarter. Aaron Cowen’s Suvretta Capital Management also initiated a $125 million position during the quarter. The other funds with brand new NKE positions are Jack Woodruff’s Candlestick Capital Management, Frank Brosens’s Taconic Capital, and Baker Burleson and Stormy Scott’s Banbury Partners.

Let’s check out hedge fund activity in other stocks similar to NIKE, Inc. (NYSE:NKE). These stocks are Abbott Laboratories (NYSE:ABT), Medtronic plc (NYSE:MDT), The Unilever Group (NYSE:UN), and Bristol Myers Squibb Company (NYSE:BMY). This group of stocks’ market caps are similar to NKE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ABT 62 2055531 -3
MDT 66 2500872 10
UN 15 1009132 -2
BMY 122 7810013 61
Average 66.25 3343887 16.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 66.25 hedge funds with bullish positions and the average amount invested in these stocks was $3344 million. That figure was $2510 million in NKE’s case. Bristol Myers Squibb Company (NYSE:BMY) is the most popular stock in this table. On the other hand The Unilever Group (NYSE:UN) is the least popular one with only 15 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 lost 1.0% in 2020 through April 20th but beat the market by 11 percentage points. Unfortunately NKE wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on NKE were disappointed as the stock returned -13% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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.