Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Akamai Technologies, Inc. (NASDAQ:AKAM).
Akamai Technologies, Inc. (NASDAQ:AKAM) has seen an increase in enthusiasm from smart money in recent months. AKAM was in 36 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 31 hedge funds in our database with AKAM holdings 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 Q4 rankings and see the video below for Q3 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (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 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_30621" align="aligncenter" width="400"] Cliff Asness of AQR Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind let's go over the latest hedge fund action regarding Akamai Technologies, Inc. (NASDAQ:AKAM).
What does smart money think about Akamai Technologies, Inc. (NASDAQ:AKAM)?
Heading into the first quarter of 2020, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 16% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AKAM over the last 18 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the most valuable position in Akamai Technologies, Inc. (NASDAQ:AKAM). AQR Capital Management has a $372.2 million position in the stock, comprising 0.4% of its 13F portfolio. Sitting at the No. 2 spot is Alyeska Investment Group, managed by Anand Parekh, which holds a $78.2 million position; the fund has 1.1% of its 13F portfolio invested in the stock. Remaining peers with similar optimism consist of D. E. Shaw's D E Shaw, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and Dmitry Balyasny's Balyasny Asset Management. In terms of the portfolio weights assigned to each position Blue Grotto Capital allocated the biggest weight to Akamai Technologies, Inc. (NASDAQ:AKAM), around 5.26% of its 13F portfolio. Alyeska Investment Group is also relatively very bullish on the stock, setting aside 1.09 percent of its 13F equity portfolio to AKAM.
As one would reasonably expect, specific money managers were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the largest position in Akamai Technologies, Inc. (NASDAQ:AKAM). Arrowstreet Capital had $44.4 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also made a $43.7 million investment in the stock during the quarter. The following funds were also among the new AKAM investors: Brian Ashford-Russell and Tim Woolley's Polar Capital, Ben Gordon's Blue Grotto Capital, and Michael Gelband's ExodusPoint Capital.
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 Carvana Co. (NYSE:CVNA), Sun Communities Inc (NYSE:SUI), Take-Two Interactive Software, Inc. (NASDAQ:TTWO), and Leidos Holdings Inc (NYSE:LDOS). All of these 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 CVNA,53,2726394,3 SUI,31,399362,13 TTWO,59,1105651,-1 LDOS,27,467199,2 Average,42.5,1174652,4.25 [/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 $1175 million. That figure was $791 million in AKAM's case. Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is the most popular stock in this table. On the other hand Leidos Holdings Inc (NYSE:LDOS) is the least popular one with only 27 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. A small number of hedge funds were also right about betting on AKAM as the stock returned -3.6% during the same time period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.