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These Hedge Funds Dumped NIKE, Inc. (NKE) A Bit Too Early

Nina Todic

Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018 as investors first worried over the possible ramifications of rising interest rates and the escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only about 60% S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of NIKE, Inc. (NYSE:NKE) and see how the stock is affected by the recent hedge fund activity.

NIKE, Inc. (NYSE:NKE) shareholders have witnessed a decrease in enthusiasm from smart money lately. Our calculations also showed that NKE isn't among the 30 most popular stocks among hedge funds (see the video at the end of this article).

In the 21st century investor’s toolkit there are a lot of tools investors put to use to evaluate their holdings. Two of the less utilized tools are hedge fund and insider trading interest. We have shown that, historically, those who follow the best picks of the best money managers can outpace the broader indices by a solid amount (see the details here).

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Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to review the fresh hedge fund action encompassing NIKE, Inc. (NYSE:NKE).

How have hedgies been trading NIKE, Inc. (NYSE:NKE)?

At Q2's end, a total of 51 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards NKE over the last 16 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with NKE Positions

Among these funds, AQR Capital Management held the most valuable stake in NIKE, Inc. (NYSE:NKE), which was worth $410.4 million at the end of the second quarter. On the second spot was Arrowstreet Capital which amassed $336 million worth of shares. Moreover, Millennium Management, Two Sigma Advisors, and Point72 Asset Management were also bullish on NIKE, Inc. (NYSE:NKE), allocating a large percentage of their portfolios to this stock.

Since NIKE, Inc. (NYSE:NKE) has experienced declining sentiment from hedge fund managers, it's safe to say that there is a sect of money managers that elected to cut their positions entirely heading into Q3. At the top of the heap, James Crichton's Hitchwood Capital Management dumped the biggest investment of the "upper crust" of funds monitored by Insider Monkey, worth close to $98.9 million in stock, and Gabriel Plotkin's Melvin Capital Management was right behind this move, as the fund sold off about $75.8 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 2 funds heading into Q3.

Let's also examine hedge fund activity in other stocks similar to NIKE, Inc. (NYSE:NKE). We will take a look at Medtronic plc (NYSE:MDT), BHP Group (NYSE:BBL), Honeywell International Inc. (NYSE:HON), and International Business Machines Corporation (NYSE:IBM). All of these stocks' market caps are closest to NKE's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MDT,49,2317404,-1 BBL,20,1040801,-1 HON,56,2476978,0 IBM,45,2040684,-1 Average,42.5,1968967,-0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.5 hedge funds with bullish positions and the average amount invested in these stocks was $1969 million. That figure was $1918 million in NKE's case. Honeywell International Inc. (NYSE:HON) is the most popular stock in this table. On the other hand BHP Group (NYSE:BBL) is the least popular one with only 20 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on NKE as the stock returned 12.2% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness. 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.

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