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Hedge Funds Are Betting On NIKE, Inc. (NKE)

Reymerlyn Martin

Is NIKE, Inc. (NYSE:NKE) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

NIKE, Inc. (NYSE:NKE) has experienced an increase in enthusiasm from smart money lately. NKE was in 63 hedge funds' portfolios at the end of the third quarter of 2019. There were 51 hedge funds in our database with NKE positions at the end of the previous quarter. Our calculations also showed that NKE isn't among the 30 most popular stocks among hedge funds.

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

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to go over the latest hedge fund action surrounding NIKE, Inc. (NYSE:NKE).

How are hedge funds trading NIKE, Inc. (NYSE:NKE)?

At Q3's end, a total of 63 of the hedge funds tracked by Insider Monkey were bullish on 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. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

NKE_nov2019

The largest stake in NIKE, Inc. (NYSE:NKE) was held by Arrowstreet Capital, which reported holding $335.2 million worth of stock at the end of September. It was followed by AQR Capital Management with a $301.3 million position. Other investors bullish on the company included Two Sigma Advisors, GLG Partners, and Millennium Management. 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 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 one would reasonably expect, key money managers were leading the bulls' herd. Alyeska Investment Group, managed by Anand Parekh, assembled the largest 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 review hedge fund activity in other stocks similar to NIKE, Inc. (NYSE:NKE). We will take a look at Medtronic plc (NYSE:MDT), SAP SE (NYSE:SAP), TOTAL S.A. (NYSE:TOT), and Adobe Inc. (NASDAQ:ADBE). All of these stocks' market caps resemble 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 Inc. (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. 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 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately NKE wasn't nearly as popular as these 20 stocks and hedge funds that were betting on NKE were disappointed as the stock returned -0.6% during the fourth quarter (through 11/22) 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.

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

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