“Market conditions are changing. The continued rise in interest rates suggests we are in the early stages of a bond bear market, which could intensify as central banks withdraw liquidity. The receding tide of liquidity will start to reveal more rocks beyond what has been exposed in emerging markets so far, and the value of a value discipline will be in avoiding the biggest capital-destroying rocks. If a rock emerges on the crowded shore of U.S. momentum, it could result in a major liquidity challenge, as momentum is often most intense on the downside as a crowded trade reverses. So investors are facing a large potential trade-off right now: continue to bet on the current dominance of momentum and the S&P 500, or bet on change and take an active value bet in names with attractive value and optionality, but with negative momentum,” said Clearbridge Investments in its market commentary. We aren’t sure whether long-term interest rates will top 5% and value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards ADT Inc. (NYSE:ADT).
Is ADT Inc. (NYSE:ADT) going to take off soon? Hedge funds are taking a bullish view. The number of long hedge fund positions improved by 4 recently. Our calculations also showed that ADT isn’t among the 30 most popular stocks among hedge funds. ADT was in 19 hedge funds’ portfolios at the end of September. There were 15 hedge funds in our database with ADT positions at the end of the previous quarter.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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.
Let’s take a glance at the recent hedge fund action regarding ADT Inc. (NYSE:ADT).
Hedge fund activity in ADT Inc. (NYSE:ADT)
Heading into the fourth quarter of 2018, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 27% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ADT over the last 13 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
The largest stake in ADT Inc. (NYSE:ADT) was held by SQN Investors, which reported holding $47.1 million worth of stock at the end of September. It was followed by GLG Partners with a $29.7 million position. Other investors bullish on the company included Alyeska Investment Group, Nantahala Capital Management, and Greenhouse Funds.
With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Millennium Management, managed by Israel Englander, initiated the most valuable position in ADT Inc. (NYSE:ADT). Millennium Management had $7.9 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $6.1 million investment in the stock during the quarter. The other funds with brand new ADT positions are Benjamin A. Smith’s Laurion Capital Management, Joe DiMenna’s ZWEIG DIMENNA PARTNERS, and Paul Tudor Jones’s Tudor Investment Corp.
Let’s check out hedge fund activity in other stocks similar to ADT Inc. (NYSE:ADT). These stocks are Sabre Corporation (NASDAQ:SABR), Flowserve Corporation (NYSE:FLS), Gerdau SA (NYSE:GGB), and NIO Inc. (NYSE:NIO). This group of stocks’ market values are closest to ADT’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SABR | 31 | 605722 | 6 |
| FLS | 13 | 329809 | -1 |
| GGB | 15 | 243035 | -5 |
| NIO | 14 | 100015 | 14 |
| Average | 18.25 | 319645 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $320 million. That figure was $147 million in ADT’s case. Sabre Corporation (NASDAQ:SABR) is the most popular stock in this table. On the other hand Flowserve Corporation (NYSE:FLS) is the least popular one with only 13 bullish hedge fund positions. ADT Inc. (NYSE:ADT) 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. In this regard SABR might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
