Were Hedge Funds Right About NIKE, Inc. (NKE)?

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded NIKE, Inc. (NYSE:NKE) and determine whether the smart money was really smart about this stock.

Is NIKE, Inc. (NYSE:NKE) a splendid investment now? The smart money is reducing their bets on the stock. The number of long hedge fund positions were trimmed by 1 recently. Our calculations also showed that NKE isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). However, overall hedge fund sentiment towards NKE is only an inch away from its all time high.

Video: 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Frank Brosens of Taconic Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a glance at the latest hedge fund action surrounding NIKE, Inc. (NYSE:NKE).

Hedge fund activity in NIKE, Inc. (NYSE:NKE)

Heading into the second quarter of 2020, a total of 80 of the hedge funds tracked by Insider Monkey were long this stock, a change of -1% from the fourth quarter of 2019. By comparison, 53 hedge funds held shares or bullish call options in NKE 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.

Among these funds, Fisher Asset Management held the most valuable stake in NIKE, Inc. (NYSE:NKE), which was worth $487.6 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $155.9 million worth of shares. AQR Capital Management, Ako Capital, and Adage Capital 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 Immersion Capital allocated the biggest weight to NIKE, Inc. (NYSE:NKE), around 9.03% of its 13F portfolio. Broad Peak Investment Holdings is also relatively very bullish on the stock, setting aside 8.59 percent of its 13F equity portfolio to NKE.

Because NIKE, Inc. (NYSE:NKE) has experienced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there exists a select few fund managers who sold off their entire stakes in the first quarter. Intriguingly, Jack Woodruff’s Candlestick Capital Management cut the largest position of the 750 funds tracked by Insider Monkey, worth close to $77 million in stock, and Frank Brosens’s Taconic Capital was right behind this move, as the fund sold off about $60.8 million worth. These moves are important to note, as aggregate hedge fund interest fell by 1 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as NIKE, Inc. (NYSE:NKE) but similarly valued. These stocks are salesforce.com, inc. (NYSE:CRM), Bristol Myers Squibb Company (NYSE:BMY), Costco Wholesale Corporation (NASDAQ:COST), and McDonald’s Corporation (NYSE:MCD). This group of stocks’ market valuations are similar to NKE’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 94.25 hedge funds with bullish positions and the average amount invested in these stocks was $4829 million. That figure was $2172 million in NKE’s case. Bristol Myers Squibb Company (NYSE:BMY) is the most popular stock in this table. On the other hand McDonald’s Corporation (NYSE:MCD) is the least popular one with only 66 bullish hedge fund positions. NIKE, Inc. (NYSE:NKE) is not the least popular stock in this group but hedge fund interest is still below average. 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 13.3% in 2020 through June 25th but beat the market by 16.8 percentage points. A small number of hedge funds were also right about betting on NKE, though not to the same extent, as the stock returned 22.9% during the second quarter and outperformed the market.

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