We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Adtalem Global Education Inc. (NYSE:ATGE)? The smart money sentiment can provide an answer to this question.
Is Adtalem Global Education Inc. (NYSE:ATGE) a sound investment now? Hedge funds are taking a bearish view. The number of bullish hedge fund positions dropped by 6 in recent months. Our calculations also showed that ATGE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). ATGE was in 20 hedge funds’ portfolios at the end of December. There were 26 hedge funds in our database with ATGE holdings 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
John Rogers of Ariel Investments
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 are checking out investment opportunities like this one. 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. Now we’re going to take a glance at the recent hedge fund action encompassing Adtalem Global Education Inc. (NYSE:ATGE).
Hedge fund activity in Adtalem Global Education Inc. (NYSE:ATGE)
At the end of the fourth quarter, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -23% from the third quarter of 2019. On the other hand, there were a total of 20 hedge funds with a bullish position in ATGE a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, International Value Advisers held the most valuable stake in Adtalem Global Education Inc. (NYSE:ATGE), which was worth $60.4 million at the end of the third quarter. On the second spot was Ariel Investments which amassed $54.8 million worth of shares. AQR Capital Management, Arrowstreet Capital, 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 International Value Advisers allocated the biggest weight to Adtalem Global Education Inc. (NYSE:ATGE), around 2.47% of its 13F portfolio. Newtyn Management is also relatively very bullish on the stock, setting aside 2.02 percent of its 13F equity portfolio to ATGE.
Judging by the fact that Adtalem Global Education Inc. (NYSE:ATGE) has witnessed bearish sentiment from the entirety of the hedge funds we track, logic holds that there exists a select few hedgies who sold off their entire stakes last quarter. Interestingly, David Harding’s Winton Capital Management dropped the largest stake of the “upper crust” of funds followed by Insider Monkey, valued at about $2.8 million in stock. Paul Tudor Jones’s fund, Tudor Investment Corp, also sold off its stock, about $1.4 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 6 funds last quarter.
Let’s check out hedge fund activity in other stocks similar to Adtalem Global Education Inc. (NYSE:ATGE). These stocks are Fastly, Inc. (NYSE:FSLY), Hope Bancorp, Inc. (NASDAQ:HOPE), Tricida, Inc. (NASDAQ:TCDA), and Redwood Trust, Inc. (NYSE:RWT). This group of stocks’ market caps resemble ATGE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FSLY | 19 | 164296 | 3 |
| HOPE | 19 | 86079 | 5 |
| TCDA | 24 | 780285 | 7 |
| RWT | 13 | 95921 | -5 |
| Average | 18.75 | 281645 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $282 million. That figure was $278 million in ATGE’s case. Tricida, Inc. (NASDAQ:TCDA) is the most popular stock in this table. On the other hand Redwood Trust, Inc. (NYSE:RWT) is the least popular one with only 13 bullish hedge fund positions. Adtalem Global Education Inc. (NYSE:ATGE) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately ATGE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ATGE were disappointed as the stock returned -27.9% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
