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Were Hedge Funds Right About Piling Into Adobe Inc. (ADBE)?

Asma UL Husna

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the first quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Adobe Inc. (NASDAQ:ADBE) based on that data and determine whether they were really smart about the stock.

Adobe Inc. (NASDAQ:ADBE) investors should be aware of an increase in hedge fund sentiment recently. Our calculations also showed that ADBE ranked 14th among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: 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 58 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 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_839199" align="aligncenter" width="392"] Rajiv Jain of GQG Partners[/caption]

Rajiv Jain of GQG Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let's take a glance at the recent hedge fund action encompassing Adobe Inc. (NASDAQ:ADBE).

What have hedge funds been doing with Adobe Inc. (NASDAQ:ADBE)?

At Q1's end, a total of 115 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from one quarter earlier. By comparison, 86 hedge funds held shares or bullish call options in ADBE a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Fisher Asset Management was the largest shareholder of Adobe Inc. (NASDAQ:ADBE), with a stake worth $1633.2 million reported as of the end of September. Trailing Fisher Asset Management was Lone Pine Capital, which amassed a stake valued at $844.4 million. Egerton Capital Limited, GQG Partners, and D E Shaw were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Center Lake Capital allocated the biggest weight to Adobe Inc. (NASDAQ:ADBE), around 12.96% of its 13F portfolio. Blue Whale Capital is also relatively very bullish on the stock, dishing out 11.49 percent of its 13F equity portfolio to ADBE.

As aggregate interest increased, key money managers were breaking ground themselves. Akre Capital Management, managed by Charles Akre, created the largest position in Adobe Inc. (NASDAQ:ADBE). Akre Capital Management had $362.8 million invested in the company at the end of the quarter. Nicolai Tangen's Ako Capital also made a $103.3 million investment in the stock during the quarter. The other funds with new positions in the stock are John Brennan's Sirios Capital Management, Ken Heebner's Capital Growth Management, and Sahm Adrangi's Kerrisdale Capital.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Adobe Inc. (NASDAQ:ADBE) but similarly valued. We will take a look at Oracle Corporation (NYSE:ORCL), Novo Nordisk A/S (NYSE:NVO), Abbott Laboratories (NYSE:ABT), and Chevron Corporation (NYSE:CVX). This group of stocks' market caps are similar to ADBE's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ORCL,48,2437677,-11 NVO,24,3036975,1 ABT,62,2189754,0 CVX,53,1646070,6 Average,46.75,2327619,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 46.75 hedge funds with bullish positions and the average amount invested in these stocks was $2328 million. That figure was $8181 million in ADBE's case. Abbott Laboratories (NYSE:ABT) is the most popular stock in this table. On the other hand Novo Nordisk A/S (NYSE:NVO) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Adobe Inc. (NASDAQ:ADBE) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 13.3% in 2020 through June 25th but still managed to beat the market by 16.8 percentage points. Hedge funds were also right about betting on ADBE as the stock returned 37.3% so far in Q2 (through June 25th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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