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Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Automatic Data Processing (NASDAQ:ADP) in this article.
Automatic Data Processing (NASDAQ:ADP) investors should pay attention to a decrease in support from the world's most elite money managers lately. Automatic Data Processing (NASDAQ:ADP) was in 42 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 56. Our calculations also showed that ADP isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).
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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. 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 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.
Mario Gabelli of GAMCO Investors
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation, which is why we are checking out this inflation play. We go through lists like 10 best gold stocks to buy to identify promising stocks. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let's view the key hedge fund action encompassing Automatic Data Processing (NASDAQ:ADP).
Do Hedge Funds Think ADP Is A Good Stock To Buy Now?
At the end of March, a total of 42 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from one quarter earlier. On the other hand, there were a total of 46 hedge funds with a bullish position in ADP a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Fundsmith LLP, managed by Terry Smith, holds the biggest position in Automatic Data Processing (NASDAQ:ADP). Fundsmith LLP has a $1.3407 billion position in the stock, comprising 4.3% of its 13F portfolio. Coming in second is Cedar Rock Capital, led by Andy Brown, holding a $458 million position; the fund has 10.2% of its 13F portfolio invested in the stock. Remaining peers that are bullish comprise Tim Hurd and Ed Magnus's BlueSpruce Investments, Guardian Capital's GuardCap Asset Management and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital. In terms of the portfolio weights assigned to each position Cedar Rock Capital allocated the biggest weight to Automatic Data Processing (NASDAQ:ADP), around 10.23% of its 13F portfolio. BlueSpruce Investments is also relatively very bullish on the stock, dishing out 6.02 percent of its 13F equity portfolio to ADP.
Judging by the fact that Automatic Data Processing (NASDAQ:ADP) has faced declining sentiment from hedge fund managers, it's easy to see that there is a sect of hedge funds that slashed their positions entirely last quarter. It's worth mentioning that Robert Pohly's Samlyn Capital dropped the biggest stake of the "upper crust" of funds watched by Insider Monkey, worth about $56.6 million in stock, and Vikas Lunia's Lunia Capital was right behind this move, as the fund dumped about $11.5 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 6 funds last quarter.
Let's also examine hedge fund activity in other stocks similar to Automatic Data Processing (NASDAQ:ADP). These stocks are Fiserv, Inc. (NASDAQ:FISV), Infosys Limited (NYSE:INFY), The TJX Companies, Inc. (NYSE:TJX), Snap Inc. (NYSE:SNAP), Prologis Inc (NYSE:PLD), Truist Financial Corporation (NYSE:TFC), and The Bank of Nova Scotia (NYSE:BNS). All of these stocks' market caps are similar to ADP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FISV,75,2748118,-19 INFY,26,2011419,3 TJX,63,2348057,-5 SNAP,73,4324308,10 PLD,39,771817,3 TFC,36,845826,-4 BNS,19,239536,0 Average,47.3,1898440,-1.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 47.3 hedge funds with bullish positions and the average amount invested in these stocks was $1898 million. That figure was $2924 million in ADP's case. Fiserv, Inc. (NASDAQ:FISV) is the most popular stock in this table. On the other hand The Bank of Nova Scotia (NYSE:BNS) is the least popular one with only 19 bullish hedge fund positions. Automatic Data Processing (NASDAQ:ADP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ADP is 42. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.4% in 2021 through June 18th and surpassed the market again by 6.1 percentage points. Unfortunately ADP wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); ADP investors were disappointed as the stock returned 2.8% since the end of March (through 6/18) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.
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Disclosure: None. This article was originally published at Insider Monkey.