We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Slack Technologies Inc (NYSE:WORK) is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Hedge fund interest in Slack Technologies Inc (NYSE:WORK) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare WORK to other stocks including Ubiquiti Inc. (NYSE:UI), China Eastern Airlines Corp. Ltd. (NYSE:CEA), and Cna Financial Corporation (NYSE:CNA) to get a better sense of its popularity.
Video: Click the image to 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 41 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.
Glen Kacher of Light Street Capital
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s go over the fresh hedge fund action encompassing Slack Technologies Inc (NYSE:WORK).
How are hedge funds trading Slack Technologies Inc (NYSE:WORK)?
Heading into the first quarter of 2020, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 0 hedge funds with a bullish position in WORK a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Light Street Capital was the largest shareholder of Slack Technologies Inc (NYSE:WORK), with a stake worth $83.5 million reported as of the end of September. Trailing Light Street Capital was Tiger Global Management LLC, which amassed a stake valued at $45.1 million. 12 West Capital Management, Citadel Investment Group, and Citadel Investment Group 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 Thrive Capital allocated the biggest weight to Slack Technologies Inc (NYSE:WORK), around 9.09% of its 13F portfolio. Light Street Capital is also relatively very bullish on the stock, setting aside 4.99 percent of its 13F equity portfolio to WORK.
Seeing as Slack Technologies Inc (NYSE:WORK) has witnessed falling interest from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of hedgies that elected to cut their full holdings in the third quarter. Intriguingly, James Woodson Davis’s Woodson Capital Management dumped the biggest investment of the “upper crust” of funds monitored by Insider Monkey, comprising close to $14.5 million in stock. Andrew Bellas’s fund, General Equity Partners, also dumped its stock, about $13.4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks similar to Slack Technologies Inc (NYSE:WORK). These stocks are Ubiquiti Inc. (NYSE:UI), China Eastern Airlines Corp. Ltd. (NYSE:CEA), Cna Financial Corporation (NYSE:CNA), and AXA Equitable Holdings, Inc. (NYSE:EQH). This group of stocks’ market caps resemble WORK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| UI | 25 | 301453 | 6 |
| CEA | 1 | 578 | 0 |
| CNA | 15 | 82549 | -1 |
| EQH | 33 | 1557170 | 10 |
| Average | 18.5 | 485438 | 3.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $485 million. That figure was $295 million in WORK’s case. AXA Equitable Holdings, Inc. (NYSE:EQH) is the most popular stock in this table. On the other hand China Eastern Airlines Corp. Ltd. (NYSE:CEA) is the least popular one with only 1 bullish hedge fund positions. Slack Technologies Inc (NYSE:WORK) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. Hedge funds were also right about betting on WORK, though not to the same extent, as the stock returned -24.2% during the first two and a half months of 2020 (through March 16th) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
