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Hedge Funds Souring On Technologies, Inc. (AKAM)

Abigail Fisher

Does Akamai Technologies, Inc. (NASDAQ:AKAM) represent a good buying opportunity at the moment? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.

Is Akamai Technologies, Inc. (NASDAQ:AKAM) a superb investment now? The smart money is selling. The number of bullish hedge fund bets decreased by 6 in recent months. 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 below for Q2 rankings). AKAM was in 27 hedge funds' portfolios at the end of the third quarter of 2019. There were 33 hedge funds in our database with AKAM positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 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_758446" align="aligncenter" width="450"] Michael Hintze of CQS Cayman LP[/caption]

Michael Hintze CQS Capital

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. Let's take a gander at the fresh hedge fund action encompassing Akamai Technologies, Inc. (NASDAQ:AKAM).

How are hedge funds trading 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 the previous quarter. By comparison, 29 hedge funds held shares or bullish call options in AKAM a year ago. With the smart money's capital changing hands, there exists a select group of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

AKAM_dec2019

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Cliff Asness's AQR Capital Management has the biggest position in Akamai Technologies, Inc. (NASDAQ:AKAM), worth close to $464.8 million, comprising 0.5% of its total 13F portfolio. Sitting at the No. 2 spot is David E. Shaw of D E Shaw, with a $70.6 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish consist of David Harding's Winton Capital Management, Anand Parekh's Alyeska Investment Group and John Overdeck and David Siegel's Two Sigma Advisors. 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 portfolio. Peconic Partners is also relatively very bullish on the stock, designating 1.7 percent of its 13F equity portfolio to AKAM.

Judging by the fact that Akamai Technologies, Inc. (NASDAQ:AKAM) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there exists a select few money managers who sold off their full holdings by the end of the third quarter. Interestingly, Nick Niell's Arrowgrass Capital Partners said goodbye to the largest stake of the "upper crust" of funds followed by Insider Monkey, comprising an estimated $20.3 million in stock. Jonathan Lourie and Stuart Fiertz's fund, Cheyne Capital, also dropped its stock, about $7.6 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 6 funds by the end of the third quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Akamai Technologies, Inc. (NASDAQ:AKAM) but similarly valued. We will take a look at 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 valuations are similar to AKAM's market valuation.

[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. This is a slightly negative signal and 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately AKAM wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); AKAM investors were disappointed as the stock returned -4.7% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.

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

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