Hedge Fund Darlings vs. Akamai Technologies, Inc. (AKAM) In 2019
Hedge funds are known to underperform the bull markets but that's not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Total Return Index ETFs returned 31% through December 23rd. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.1% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds' consensus stock picks rather than directly investing in hedge funds. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Akamai Technologies, Inc. (NASDAQ:AKAM).
Akamai Technologies, Inc. (NASDAQ:AKAM) investors should be aware of a decrease in enthusiasm from smart money in recent months. AKAM was in 27 hedge funds' portfolios at the end of September. There were 33 hedge funds in our database with AKAM positions at the end of the previous quarter. Our calculations also showed that AKAM 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).
Why do we pay any attention at all to hedge fund sentiment? 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_189632" align="aligncenter" width="450"]
David Harding of Winton Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example one of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his 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. Keeping this in mind we're going to take a look at the fresh hedge fund action regarding Akamai Technologies, Inc. (NASDAQ:AKAM).
Hedge fund activity in Akamai Technologies, Inc. (NASDAQ:AKAM)
At Q3's end, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from one quarter earlier. By comparison, 29 hedge funds held shares or bullish call options in AKAM a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, AQR Capital Management held the most valuable stake in Akamai Technologies, Inc. (NASDAQ:AKAM), which was worth $464.8 million at the end of the third quarter. On the second spot was D E Shaw which amassed $70.6 million worth of shares. Winton Capital Management, Alyeska Investment Group, and Two Sigma Advisors 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 Lucha Capital Management allocated the biggest weight to Akamai Technologies, Inc. (NASDAQ:AKAM), around 1.95% of its 13F portfolio. Peconic Partners is also relatively very bullish on the stock, dishing out 1.7 percent of its 13F equity portfolio to AKAM.
Due to the fact that Akamai Technologies, Inc. (NASDAQ:AKAM) has faced falling interest from the entirety of the hedge funds we track, logic holds that there lies a certain "tier" of funds that decided to sell off their entire stakes heading into Q4. At the top of the heap, Nick Niell's Arrowgrass Capital Partners dropped the biggest investment of the 750 funds tracked by Insider Monkey, comprising about $20.3 million in stock, and Jonathan Lourie and Stuart Fiertz's Cheyne Capital was right behind this move, as the fund cut about $7.6 million worth. These moves are important to note, as aggregate hedge fund interest fell by 6 funds heading into Q4.
Let's check out hedge fund activity in other stocks similar to Akamai Technologies, Inc. (NASDAQ:AKAM). These stocks are Twilio Inc. (NYSE:TWLO), Conagra Brands, Inc. (NYSE:CAG), Waters Corporation (NYSE:WAT), and Mid-America Apartment Communities, Inc. (NYSE:MAA). This group of stocks' market caps are similar to AKAM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TWLO,59,2259864,-4 CAG,27,681948,3 WAT,25,595467,-1 MAA,17,298982,4 Average,32,959065,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 32 hedge funds with bullish positions and the average amount invested in these stocks was $959 million. That figure was $811 million in AKAM's case. Twilio Inc. (NYSE:TWLO) is the most popular stock in this table. On the other hand Mid-America Apartment Communities, Inc. (NYSE:MAA) is the least popular one with only 17 bullish hedge fund positions. Akamai Technologies, Inc. (NASDAQ:AKAM) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. A small number of hedge funds were also right about betting on AKAM, though not to the same extent, as the stock returned 40.7% in 2019 (as of 12/23) and outperformed the market.
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.
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