U.S. Markets closed

Hedge Fund Consensus Stocks vs. NIKE, Inc. (NKE) In 2019

Reymerlyn Martin

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren't usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index's returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you'd fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 10 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in NIKE, Inc. (NYSE:NKE).

Is NIKE, Inc. (NYSE:NKE) the right pick for your portfolio? Hedge funds are turning bullish. The number of long hedge fund positions rose by 12 recently. Our calculations also showed that NKE isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). NKE was in 63 hedge funds' portfolios at the end of September. There were 51 hedge funds in our database with NKE 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 has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_745225" align="aligncenter" width="1613"] Noam Gottesman of GLG Partners[/caption]

Noam Gottesman GLG Partners

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind let's take a glance at the new hedge fund action encompassing NIKE, Inc. (NYSE:NKE).

What does smart money think about NIKE, Inc. (NYSE:NKE)?

At Q3's end, a total of 63 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 24% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in NKE over the last 17 quarters. With hedgies' capital changing hands, there exists a few noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Among these funds, Arrowstreet Capital held the most valuable stake in NIKE, Inc. (NYSE:NKE), which was worth $335.2 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $301.3 million worth of shares. Two Sigma Advisors, GLG Partners, and Millennium 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 EMS Capital allocated the biggest weight to NIKE, Inc. (NYSE:NKE), around 6.37% of its 13F portfolio. GuardCap Asset Management is also relatively very bullish on the stock, dishing out 6.11 percent of its 13F equity portfolio to NKE.

As industrywide interest jumped, key money managers were breaking ground themselves. Alyeska Investment Group, managed by Anand Parekh, created the most outsized position in NIKE, Inc. (NYSE:NKE). Alyeska Investment Group had $38 million invested in the company at the end of the quarter. Ryan Caldwell's Chiron Investment Management also initiated a $20.8 million position during the quarter. The other funds with brand new NKE positions are Dmitry Balyasny's Balyasny Asset Management, Jay Genzer's Thames Capital Management, and Parvinder Thiara's Athanor Capital.

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 Medtronic plc (NYSE:MDT), SAP SE (NYSE:SAP), TOTAL S.A. (NYSE:TOT), and Adobe Inc. (NASDAQ:ADBE). This group of stocks' market caps are similar to NKE's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MDT,50,2120499,1 SAP,18,1578895,1 TOT,17,1094583,4 ADBE,92,8325284,0 Average,44.25,3279815,1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 44.25 hedge funds with bullish positions and the average amount invested in these stocks was $3280 million. That figure was $2304 million in NKE's case. Adobe Systems Incorporated (NASDAQ:ADBE) is the most popular stock in this table. On the other hand TOTAL S.A. (NYSE:TOT) is the least popular one with only 17 bullish hedge fund positions. NIKE, Inc. (NYSE:NKE) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on NKE, though not to the same extent, as the stock returned 38.1% during 2019 and outperformed the market as well. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

Related Content