In this article we will check out the progression of hedge fund sentiment towards Adobe Inc. (NASDAQ:ADBE) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is Adobe Inc. (NASDAQ:ADBE) an attractive investment right now? Hedge funds are turning bullish. The number of long hedge fund bets advanced by 9 in recent months. Our calculations also showed that ADBE is among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). ADBE was in 115 hedge funds’ portfolios at the end of the first quarter of 2020. There were 106 hedge funds in our database with ADBE holdings at the end of the previous quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 44 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
John Armitage of Egerton Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we asked astrophysicist Neil deGrasse Tyson about Tesla, Elon Musk, and his top stock picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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 let’s take a glance at the recent hedge fund action regarding Adobe Inc. (NASDAQ:ADBE).
What does smart money think about Adobe Inc. (NASDAQ:ADBE)?
Heading into the second quarter of 2020, a total of 115 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from the previous quarter. By comparison, 86 hedge funds held shares or bullish call options in ADBE a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Fisher Asset Management held the most valuable stake in Adobe Inc. (NASDAQ:ADBE), which was worth $1633.2 million at the end of the third quarter. On the second spot was Lone Pine Capital which amassed $844.4 million worth of shares. Egerton Capital Limited, GQG Partners, and D E Shaw 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 Center Lake Capital allocated the biggest weight to Adobe Inc. (NASDAQ:ADBE), around 12.96% of its 13F portfolio. Blue Whale Capital is also relatively very bullish on the stock, earmarking 11.49 percent of its 13F equity portfolio to ADBE.
As industrywide interest jumped, specific money managers have jumped into Adobe Inc. (NASDAQ:ADBE) headfirst. Akre Capital Management, managed by Charles Akre, created the most outsized position in Adobe Inc. (NASDAQ:ADBE). Akre Capital Management had $362.8 million invested in the company at the end of the quarter. Nicolai Tangen’s Ako Capital also made a $103.3 million investment in the stock during the quarter. The following funds were also among the new ADBE investors: John Brennan’s Sirios Capital Management, Ken Heebner’s Capital Growth Management, and Sahm Adrangi’s Kerrisdale Capital.
Let’s now review hedge fund activity in other stocks similar to Adobe Inc. (NASDAQ:ADBE). We will take a look at Oracle Corporation (NYSE:ORCL), Novo Nordisk A/S (NYSE:NVO), Abbott Laboratories (NYSE:ABT), and Chevron Corporation (NYSE:CVX). This group of stocks’ market caps match ADBE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ORCL | 48 | 2437677 | -11 |
| NVO | 24 | 3036975 | 1 |
| ABT | 62 | 2189754 | 0 |
| CVX | 53 | 1646070 | 6 |
| Average | 46.75 | 2327619 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 46.75 hedge funds with bullish positions and the average amount invested in these stocks was $2328 million. That figure was $8181 million in ADBE’s case. Abbott Laboratories (NYSE:ABT) is the most popular stock in this table. On the other hand Novo Nordisk A/S (NYSE:NVO) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Adobe Inc. (NASDAQ:ADBE) is more popular among hedge funds. 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 returned 7.9% in 2020 through May 22nd but still managed to beat the market by 15.6 percentage points. Hedge funds were also right about betting on ADBE as the stock returned 21.1% so far in Q2 (through May 22nd) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
