As we already know from media reports and hedge fund investor letters, many hedge funds lost money in fourth quarter, blaming macroeconomic conditions and unpredictable events that hit several sectors, with technology among them. Nevertheless, most investors decided to stick to their bullish theses and recouped their losses by the end of the first quarter. We get to see hedge funds' thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Automatic Data Processing (NASDAQ:ADP).
Is Automatic Data Processing (NASDAQ:ADP) a marvelous investment right now? The smart money is becoming less hopeful. The number of long hedge fund positions shrunk by 3 lately. Our calculations also showed that ADP isn't among the 30 most popular stocks among hedge funds. ADP was in 39 hedge funds' portfolios at the end of March. There were 42 hedge funds in our database with ADP positions at the end of the previous quarter.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's take a look at the latest hedge fund action surrounding Automatic Data Processing (NASDAQ:ADP).
Hedge fund activity in Automatic Data Processing (NASDAQ:ADP)
At Q1's end, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ADP over the last 15 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.
More specifically, Pershing Square was the largest shareholder of Automatic Data Processing (NASDAQ:ADP), with a stake worth $643.7 million reported as of the end of March. Trailing Pershing Square was Cedar Rock Capital, which amassed a stake valued at $527.8 million. Generation Investment Management, Arrowstreet Capital, and Two Sigma Advisors were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that Automatic Data Processing (NASDAQ:ADP) has witnessed falling interest from hedge fund managers, it's easy to see that there lies a certain "tier" of fund managers that elected to cut their positions entirely by the end of the third quarter. Intriguingly, Steve Cohen's Point72 Asset Management said goodbye to the biggest stake of the "upper crust" of funds monitored by Insider Monkey, comprising about $157.3 million in stock, and Doug Silverman and Alexander Klabin's Senator Investment Group was right behind this move, as the fund dropped about $131.1 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 3 funds by the end of the third quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Automatic Data Processing (NASDAQ:ADP) but similarly valued. These stocks are QUALCOMM, Incorporated (NASDAQ:QCOM), BlackRock, Inc. (NYSE:BLK), Intuit Inc. (NASDAQ:INTU), and Ambev SA (NYSE:ABEV). This group of stocks' market values are similar to ADP's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position QCOM,45,1905850,-6 BLK,45,753724,9 INTU,42,2351847,3 ABEV,13,247756,0 Average,36.25,1314794,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.25 hedge funds with bullish positions and the average amount invested in these stocks was $1315 million. That figure was $2853 million in ADP's case. QUALCOMM, Incorporated (NASDAQ:QCOM) is the most popular stock in this table. On the other hand Ambev SA (NYSE:ABEV) is the least popular one with only 13 bullish hedge fund positions. Automatic Data Processing (NASDAQ:ADP) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on ADP, though not to the same extent, as the stock returned 0.7% during the same time frame and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.