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 Adtalem Global Education Inc. (NYSE:ATGE) and determine whether hedge funds had an edge regarding this stock.
Adtalem Global Education Inc. (NYSE:ATGE) has experienced a decrease in activity from the world’s largest hedge funds lately. Our calculations also showed that ATGE isn’t 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.
In the eyes of most stock holders, hedge funds are assumed to be underperforming, outdated financial tools of the past. While there are over 8000 funds trading at the moment, Our experts choose to focus on the elite of this group, around 850 funds. Most estimates calculate that this group of people watch over the lion’s share of the smart money’s total asset base, and by watching their first-class stock picks, Insider Monkey has discovered several investment strategies that have historically exceeded the market. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
John Rogers of Ariel Investments
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. Now let’s take a look at the key hedge fund action encompassing Adtalem Global Education Inc. (NYSE:ATGE).
Hedge fund activity in Adtalem Global Education Inc. (NYSE:ATGE)
Heading into the second quarter of 2020, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -40% from the fourth quarter of 2019. By comparison, 16 hedge funds held shares or bullish call options in ATGE 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.
Among these funds, International Value Advisers held the most valuable stake in Adtalem Global Education Inc. (NYSE:ATGE), which was worth $106.1 million at the end of the third quarter. On the second spot was Ariel Investments which amassed $75.8 million worth of shares. Arrowstreet Capital, AQR Capital Management, 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 Madison Avenue Partners allocated the biggest weight to Adtalem Global Education Inc. (NYSE:ATGE), around 7.4% of its 13F portfolio. International Value Advisers is also relatively very bullish on the stock, setting aside 6.71 percent of its 13F equity portfolio to ATGE.
Due to the fact that Adtalem Global Education Inc. (NYSE:ATGE) has witnessed declining sentiment from the aggregate hedge fund industry, logic holds that there was a specific group of fund managers that elected to cut their entire stakes last quarter. Intriguingly, Noah Levy and Eugene Dozortsev’s Newtyn Management cut the biggest investment of the “upper crust” of funds followed by Insider Monkey, valued at about $21.9 million in stock, and Noam Gottesman’s GLG Partners was right behind this move, as the fund sold off about $11.2 million worth. These transactions are interesting, as total hedge fund interest fell by 8 funds last quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Adtalem Global Education Inc. (NYSE:ATGE) but similarly valued. These stocks are 8×8, Inc. (NYSE:EGHT), NBT Bancorp Inc. (NASDAQ:NBTB), Domtar Corporation (NYSE:UFS), and CareTrust REIT Inc (NASDAQ:CTRE). This group of stocks’ market values are closest to ATGE’s market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EGHT,20,368670,6 NBTB,4,10462,-3 UFS,18,86572,-8 CTRE,7,19766,-6 Average,12.25,121368,-2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $121 million. That figure was $269 million in ATGE’s case. 8×8, Inc. (NYSE:EGHT) is the most popular stock in this table. On the other hand NBT Bancorp Inc. (NASDAQ:NBTB) is the least popular one with only 4 bullish hedge fund positions. Adtalem Global Education Inc. (NYSE:ATGE) is not the least popular stock in this group but hedge fund interest is still below average. 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 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately ATGE wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ATGE investors were disappointed as the stock returned 16.3% during the second quarter 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 most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.