We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Adtalem Global Education Inc. (NYSE:ATGE) and determine whether hedge funds skillfully traded this stock.
Is Adtalem Global Education Inc. (NYSE:ATGE) ready to rally soon? The best stock pickers were in an optimistic mood. The number of long hedge fund bets inched up by 10 recently. Adtalem Global Education Inc. (NYSE:ATGE) was in 22 hedge funds’ portfolios at the end of June. The all time high for this statistics is 26. Our calculations also showed that ATGE isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
John Rogers of Ariel Investments
At Insider Monkey we scour multiple sources to uncover 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 and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Keeping this in mind we’re going to analyze the new hedge fund action encompassing Adtalem Global Education Inc. (NYSE:ATGE).
What does smart money think about Adtalem Global Education Inc. (NYSE:ATGE)?
Heading into the third quarter of 2020, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 83% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ATGE over the last 20 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Adtalem Global Education Inc. (NYSE:ATGE) was held by International Value Advisers, which reported holding $91.8 million worth of stock at the end of September. It was followed by Ariel Investments with a $88 million position. Other investors bullish on the company included Arrowstreet Capital, Madison Avenue Partners, and Brightlight Capital. In terms of the portfolio weights assigned to each position Brightlight Capital allocated the biggest weight to Adtalem Global Education Inc. (NYSE:ATGE), around 10.82% of its 13F portfolio. Madison Avenue Partners is also relatively very bullish on the stock, earmarking 9.44 percent of its 13F equity portfolio to ATGE.
As one would reasonably expect, key hedge funds have jumped into Adtalem Global Education Inc. (NYSE:ATGE) headfirst. Fairpointe Capital, managed by Thyra Zerhusen, assembled the most valuable position in Adtalem Global Education Inc. (NYSE:ATGE). Fairpointe Capital had $18.5 million invested in the company at the end of the quarter. Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners also made a $2 million investment in the stock during the quarter. The other funds with new positions in the stock are Joel Greenblatt’s Gotham Asset Management, Renaissance Technologies, and Donald Sussman’s Paloma Partners.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Adtalem Global Education Inc. (NYSE:ATGE) but similarly valued. We will take a look at Columbia Financial, Inc. (NASDAQ:CLBK), Minerals Technologies Inc (NYSE:MTX), Vaxcyte, Inc. (NASDAQ:PCVX), ShockWave Medical, Inc. (NASDAQ:SWAV), SPX FLOW, Inc. (NASDAQ:FLOW), Hostess Brands, Inc. (NASDAQ:TWNK), and Avis Budget Group Inc. (NASDAQ:CAR). This group of stocks’ market values resemble ATGE’s market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CLBK,10,37574,0 MTX,17,99685,1 PCVX,12,365680,12 SWAV,12,91652,2 FLOW,10,138000,-5 TWNK,24,212050,-6 CAR,21,672517,-2 Average,15.1,231023,0.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.1 hedge funds with bullish positions and the average amount invested in these stocks was $231 million. That figure was $318 million in ATGE’s case. Hostess Brands, Inc. (NASDAQ:TWNK) is the most popular stock in this table. On the other hand Columbia Financial, Inc. (NASDAQ:CLBK) is the least popular one with only 10 bullish hedge fund positions. Adtalem Global Education Inc. (NYSE:ATGE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ATGE is 78.2. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 gained 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately ATGE wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ATGE were disappointed as the stock returned -21.2% in Q3 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.