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 have processed the filings of the more than 873 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their June 30th holdings, data that is available nowhere else. Should you consider Automatic Data Processing, Inc. (NASDAQ:ADP) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.
Automatic Data Processing, Inc. (NASDAQ:ADP) shareholders have witnessed a decrease in hedge fund interest in recent months. Automatic Data Processing, Inc. (NASDAQ:ADP) was in 41 hedge funds’ portfolios at the end of June. The all time high for this statistic is 56. Our calculations also showed that ADP isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
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 S&P 500 ETFs by 79 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.
Peter Rathjens of Arrowstreet Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech 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. Now let’s check out the recent hedge fund action surrounding Automatic Data Processing, Inc. (NASDAQ:ADP).
Do Hedge Funds Think ADP Is A Good Stock To Buy Now?
At the end of the second quarter, a total of 41 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -2% from the first quarter of 2020. By comparison, 49 hedge funds held shares or bullish call options in ADP a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Automatic Data Processing, Inc. (NASDAQ:ADP) was held by Fundsmith LLP, which reported holding $1409.6 million worth of stock at the end of June. It was followed by Cedar Rock Capital with a $463.6 million position. Other investors bullish on the company included BlueSpruce Investments, GuardCap Asset Management, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Cedar Rock Capital allocated the biggest weight to Automatic Data Processing, Inc. (NASDAQ:ADP), around 10.55% of its 13F portfolio. BlueSpruce Investments is also relatively very bullish on the stock, designating 7.61 percent of its 13F equity portfolio to ADP.
Since Automatic Data Processing, Inc. (NASDAQ:ADP) has faced falling interest from the entirety of the hedge funds we track, logic holds that there was a specific group of money managers that decided to sell off their entire stakes by the end of the second quarter. At the top of the heap, John Overdeck and David Siegel’s Two Sigma Advisors sold off the largest position of all the hedgies tracked by Insider Monkey, comprising about $34.5 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dropped its stock, about $27.9 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 1 funds by the end of the second quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Automatic Data Processing, Inc. (NASDAQ:ADP). We will take a look at Crown Castle International Corp. (REIT) (NYSE:CCI), ConocoPhillips (NYSE:COP), The TJX Companies, Inc. (NYSE:TJX), Cigna Corporation (NYSE:CI), Enbridge Inc (NYSE:ENB), The PNC Financial Services Group Inc. (NYSE:PNC), and Brookfield Asset Management Inc. (NYSE:BAM). All of these stocks’ market caps are closest to ADP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CCI | 42 | 2093903 | -1 |
| COP | 50 | 1158596 | -1 |
| TJX | 56 | 2387336 | -7 |
| CI | 63 | 2807451 | 10 |
| ENB | 19 | 166071 | -3 |
| PNC | 38 | 727612 | -1 |
| BAM | 34 | 1657528 | 0 |
| Average | 43.1 | 1571214 | -0.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 43.1 hedge funds with bullish positions and the average amount invested in these stocks was $1571 million. That figure was $3019 million in ADP’s case. Cigna Corporation (NYSE:CI) is the most popular stock in this table. On the other hand Enbridge Inc (NYSE:ENB) is the least popular one with only 19 bullish hedge fund positions. Automatic Data Processing, Inc. (NASDAQ:ADP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ADP is 51. 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 21.8% in 2021 through October 11th and still beat the market by 4.4 percentage points. A small number of hedge funds were also right about betting on ADP as the stock returned 3.1% since the end of the second quarter (through 10/11) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
