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Were Hedge Funds Right About Flocking Into Autodesk, Inc. (ADSK)?

Asma UL Husna

"October lived up to its scary reputation—the S&P 500 falling in the month by the largest amount in the last 40 years, the only worse Octobers being '08 and the Crash of '87. For perspective, there have been only 5 occasions in those 40 years when the S&P 500 declined by greater than 20% from peak to trough. Other than the '87 Crash, all were during recessions. There were 17 other instances, over the same time frame, when the market fell by over 10% but less than 20%. Furthermore, this is the 18th correction of 5% or more since the current bull market started in March '09. Corrections are the norm. They can be healthy as they often undo market complacency—overbought levels—potentially allowing the market to base and move even higher." This is how Trapeze Asset Management summarized the recent market moves in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.

Autodesk, Inc. (NASDAQ:ADSK) investors should pay attention to a decrease in support from the world's most elite money managers in recent months. ADSK was in 59 hedge funds' portfolios at the end of December. There were 66 hedge funds in our database with ADSK holdings at the end of the previous quarter. Our calculations also showed that ADSK isn't among the 30 most popular stocks among hedge funds.

At the moment there are a large number of metrics market participants employ to assess stocks. Some of the less utilized metrics are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the top picks of the top investment managers can trounce the S&P 500 by a healthy margin (see the details here).

John Armitage Egerton Capital

Let's take a look at the latest hedge fund action regarding Autodesk, Inc. (NASDAQ:ADSK).

What have hedge funds been doing with Autodesk, Inc. (NASDAQ:ADSK)?

At Q4's end, a total of 59 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards ADSK over the last 14 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

ADSK_mar2019

Among these funds, Lone Pine Capital held the most valuable stake in Autodesk, Inc. (NASDAQ:ADSK), which was worth $493.4 million at the end of the third quarter. On the second spot was Darsana Capital Partners which amassed $234.7 million worth of shares. Moreover, Egerton Capital Limited, SRS Investment Management, and Sachem Head Capital were also bullish on Autodesk, Inc. (NASDAQ:ADSK), allocating a large percentage of their portfolios to this stock.

Because Autodesk, Inc. (NASDAQ:ADSK) has faced bearish sentiment from the smart money, logic holds that there lies a certain "tier" of hedgies who were dropping their positions entirely by the end of the third quarter. At the top of the heap, Zach Schreiber's Point State Capital said goodbye to the biggest stake of the 700 funds followed by Insider Monkey, valued at close to $183.9 million in stock, and Andreas Halvorsen's Viking Global was right behind this move, as the fund dumped about $177.9 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 7 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 Autodesk, Inc. (NASDAQ:ADSK) but similarly valued. We will take a look at Manulife Financial Corporation (NYSE:MFC), Chunghwa Telecom Co., Ltd (NYSE:CHT), Credit Suisse Group AG (NYSE:CS), and O'Reilly Automotive Inc (NASDAQ:ORLY). This group of stocks' market values are similar to ADSK's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MFC,20,285853,-1 CHT,2,118799,-2 CS,14,143506,1 ORLY,45,1999588,2 Average,20.25,636937,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $637 million. That figure was $3087 million in ADSK's case. O'Reilly Automotive Inc (NASDAQ:ORLY) is the most popular stock in this table. On the other hand Chunghwa Telecom Co., Ltd (NYSE:CHT) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Autodesk, Inc. (NASDAQ:ADSK) is more popular among hedge funds. Hedge funds are clearly bullish about the stock even though there was a small decline in sentiment during Q4. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also right about betting on ADSK, though not to the same extent, as the stock returned 19.2% and outperformed the market as well.

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

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