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Dow Stock Nike Fakes Out Fleeing Hedge Funds

Last Updated September 23, 2020 1:07 PM
Gerelyn Terzo
Last Updated September 23, 2020 1:07 PM

Dow Jones stock Nike has seen its value increase by 25% year-to-date, but some big investors aren’t convinced that it has more runway for gains. The consumer stock recently fell out of favor with hedge funds, who according to a report in Insider Monkey  have been dumping NKE shares.

The hedge fund tracking website revealed that the number of funds that are long on NKE stock dropped 4% from the end of Q1 to the end of Q2 2019, which seemingly is the latest data available from public filings. But since the end of Q2, Nike stock has advanced more than 14%, suggesting that the bearish traders exited their long positions prematurely.

nike chart
Source: Yahoo Finance

Nike Bulls vs. Bears

Perhaps the sophisticated traders were spooked by the potential fallout from the threatening U.S./China trade war or maybe they presciently knew that there was another shoe yet to drop.

In recent days, Nike has taken the spotlight for its relationship with the NBA, where its brand is a part of the culture of the basketball league. LeBron James inked a lifetime deal with Nike that will reportedly be worth $1 billion by the time the Lakers player is in his sixties, according to Forbes .

Meanwhile, the NBA is trying to save face with China after Houston Rockets General Manager Daryl Morey tweeted in defense of Hong Kong protestors. It’s possible that investors are worried that the NBA’s problems could spill over to Nike, which could explain why Nike’s stock has been stuck for much of this week.

Nike generated more than $6 billion in revenue  from China in 2018, and the NBA’s popularity no doubt fueled much of those sales. Now with the NBA’s Rockets suspended and the Chinese government watching the situation like a hawk, Nike could be vulnerable.

So which hedge funds bailed on Nike? The report indicates that it was the following firms:

  • Hitchwood Capital Management sold roughly $98 million in NKE stock
  • Melvin Capital Management unloaded more than $75 million in NKE stock

Other hedge funds remain bullish on Nike stock, including AQR Capital Management and Arrowstreet Capital.

Fake Out

In a separate development, nearly 15,000 pairs of fake Nike sneakers, the authentic versions of which would be worth more than $2 million , were seized by border control officials in California. In an ironic twist, the shipment had arrived from – you guessed it – China.