Were Hedge Funds Right About Akamai Technologies, Inc. (AKAM)?

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 Akamai Technologies, Inc. (NASDAQ:AKAM)? The smart money sentiment can provide an answer to this question.

Hedge fund interest in Akamai Technologies, Inc. (NASDAQ:AKAM) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that AKAM isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Ameren Corporation (NYSE:AEE), Interactive Brokers Group, Inc. (NASDAQ:IBKR), and Coca-Cola European Partners plc (NYSE:CCEP) to gather more data points. Our calculations also showed that AKAM isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Nick Thakore of Diametric Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Now let’s check out the recent hedge fund action encompassing Akamai Technologies, Inc. (NASDAQ:AKAM).

How have hedgies been trading Akamai Technologies, Inc. (NASDAQ:AKAM)?

At second quarter’s end, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the first quarter of 2020. On the other hand, there were a total of 33 hedge funds with a bullish position in AKAM 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.

Of the funds tracked by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the biggest position in Akamai Technologies, Inc. (NASDAQ:AKAM). AQR Capital Management has a $227 million position in the stock, comprising 0.4% of its 13F portfolio. Coming in second is D. E. Shaw of D E Shaw, with a $50.5 million position; 0.1% of its 13F portfolio is allocated to the company. Remaining members of the smart money that are bullish contain Brian Ashford-Russell and Tim Woolley’s Polar Capital, Noam Gottesman’s GLG Partners and Anand Parekh’s Alyeska Investment Group. In terms of the portfolio weights assigned to each position Sandler Capital Management allocated the biggest weight to Akamai Technologies, Inc. (NASDAQ:AKAM), around 2.91% of its 13F portfolio. KCL Capital is also relatively very bullish on the stock, dishing out 2.8 percent of its 13F equity portfolio to AKAM.

Seeing as Akamai Technologies, Inc. (NASDAQ:AKAM) has faced declining sentiment from the aggregate hedge fund industry, we can see that there exists a select few money managers that slashed their entire stakes in the second quarter. Interestingly, Dmitry Balyasny’s Balyasny Asset Management dropped the largest position of the “upper crust” of funds monitored by Insider Monkey, worth close to $30.4 million in stock. Israel Englander’s fund, Millennium Management, also sold off its stock, about $10.9 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Akamai Technologies, Inc. (NASDAQ:AKAM) but similarly valued. We will take a look at Ameren Corporation (NYSE:AEE), Interactive Brokers Group, Inc. (NASDAQ:IBKR), Coca-Cola European Partners plc (NYSE:CCEP), Conagra Brands, Inc. (NYSE:CAG), iQIYI, Inc. (NASDAQ:IQ), Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY), and Cheniere Energy Partners LP (NYSE:CQP). This group of stocks’ market valuations are closest to AKAM’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.4 hedge funds with bullish positions and the average amount invested in these stocks was $646 million. That figure was $549 million in AKAM’s case. Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY) is the most popular stock in this table. On the other hand Cheniere Energy Partners LP (NYSE:CQP) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Akamai Technologies, Inc. (NASDAQ:AKAM) is more popular among hedge funds. Our overall hedge fund sentiment score for AKAM is 85. 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 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 gained 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Unfortunately AKAM wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on AKAM were disappointed as the stock returned -11.2% since the end of the second quarter (through 10/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

Disclosure: None. This article was originally published at Insider Monkey.