Do Hedge Funds Love Adobe Inc. (ADBE)?

In this article we are going to use hedge fund sentiment as a tool and determine whether Adobe Inc. (NASDAQ:ADBE) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Adobe Inc. (NASDAQ:ADBE) investors should be aware of a decrease in activity from the world’s largest hedge funds recently. Adobe Inc. (NASDAQ:ADBE) was in 89 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 115. There were 107 hedge funds in our database with ADBE holdings at the end of March. Our calculations also showed that ADBE ranked 25th among the 30 most popular stocks among hedge funds (click for Q2 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Richard Gerson of Falcon Edge Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind we’re going to check out the fresh hedge fund action encompassing Adobe Inc. (NASDAQ:ADBE).

Do Hedge Funds Think ADBE Is A Good Stock To Buy Now?

At second quarter’s end, a total of 89 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards ADBE over the last 24 quarters. So, let’s see 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 Adobe Inc. (NASDAQ:ADBE), with a stake worth $3634.7 million reported as of the end of June. Trailing Fisher Asset Management was Lone Pine Capital, which amassed a stake valued at $1415.5 million. Arrowstreet Capital, Akre Capital Management, and GQG Partners 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 Keywise Capital Management allocated the biggest weight to Adobe Inc. (NASDAQ:ADBE), around 12.88% of its 13F portfolio. Center Lake Capital is also relatively very bullish on the stock, designating 10.95 percent of its 13F equity portfolio to ADBE.

Judging by the fact that Adobe Inc. (NASDAQ:ADBE) has faced falling interest from hedge fund managers, we can see that there exists a select few hedge funds that elected to cut their full holdings by the end of the second quarter. At the top of the heap, Rick Slocum’s Harvard Management Co said goodbye to the biggest position of the 750 funds tracked by Insider Monkey, comprising an estimated $155 million in stock, and Renaissance Technologies was right behind this move, as the fund dropped about $140.8 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 18 funds by the end of the second quarter.

Let’s now review 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 Exxon Mobil Corporation (NYSE:XOM), Comcast Corporation (NASDAQ:CMCSA), Toyota Motor Corporation (NYSE:TM), NIKE, Inc. (NYSE:NKE), Netflix, Inc. (NASDAQ:NFLX), The Coca-Cola Company (NYSE:KO), and Verizon Communications Inc. (NYSE:VZ). This group of stocks’ market valuations are closest to ADBE’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 67 hedge funds with bullish positions and the average amount invested in these stocks was $9924 million. That figure was $13101 million in ADBE’s case. Netflix, Inc. (NASDAQ:NFLX) is the most popular stock in this table. On the other hand Toyota Motor Corporation (NYSE:TM) is the least popular one with only 12 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 48.3. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.1% in 2021 through September 20th and still beat the market by 6.9 percentage points. Hedge funds were also right about betting on ADBE as the stock returned 9.5% since the end of Q2 (through 9/20) 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.