Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 750 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Adobe Inc. (NASDAQ:ADBE) in this article.
Hedge fund interest in Adobe Inc. (NASDAQ:ADBE) shares was flat at the end of last quarter. This is usually a negative indicator, but not in Adobe’s case. That’s because hedge fund sentiment towards ADBE hit its all-time high at the end of June and this didn’t change during the third quarter either. Our calculations also showed that ADBE ranked 18th overall among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
John Armitage of Egerton Capital
We’re going to analyze the key hedge fund action encompassing Adobe Inc. (NASDAQ:ADBE).
What have hedge funds been doing with Adobe Inc. (NASDAQ:ADBE)?
At the end of the third quarter, a total of 92 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ADBE over the last 17 quarters. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
More specifically, Fisher Asset Management was the largest shareholder of Adobe Inc. (NASDAQ:ADBE), with a stake worth $1127 million reported as of the end of September. Trailing Fisher Asset Management was Lone Pine Capital, which amassed a stake valued at $981.7 million. Egerton Capital Limited, Melvin Capital Management, and Coatue 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 Two Creeks Capital Management allocated the biggest weight to Adobe Inc. (NASDAQ:ADBE), around 9.77% of its portfolio. BlueSpruce Investments is also relatively very bullish on the stock, designating 9.7 percent of its 13F equity portfolio to ADBE.
Our database also shows that there were a few hedge funds who sold off their full holdings by the end of the third quarter. Interestingly, Dmitry Balyasny’s Balyasny Asset Management dropped the largest position of the 750 funds monitored by Insider Monkey, totaling an estimated $62.3 million in stock. Brandon Haley’s fund, Holocene Advisors, also said goodbye to its stock, about $39.6 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks similar to Adobe Inc. (NASDAQ:ADBE). These stocks are salesforce.com, inc. (NYSE:CRM), BP plc (NYSE:BP), International Business Machines Corp. (NYSE:IBM), and Costco Wholesale Corporation (NASDAQ:COST). This group of stocks’ market caps are closest to ADBE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CRM | 102 | 9433280 | 20 |
| BP | 36 | 1617309 | 7 |
| IBM | 42 | 1569607 | -3 |
| COST | 51 | 3861914 | 11 |
| Average | 57.75 | 4120528 | 8.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 57.75 hedge funds with bullish positions and the average amount invested in these stocks was $4121 million. That figure was $8325 million in ADBE’s case. salesforce.com, inc. (NYSE:CRM) is the most popular stock in this table. On the other hand BP plc (NYSE:BP) is the least popular one with only 36 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 calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Hedge funds were also right about betting on ADBE as the stock returned 8.3% during the fourth quarter (through 11/22) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
