Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish an article with the title “Recession is Imminent: We Need A Travel Ban NOW”. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on December 31st. We at Insider Monkey have made an extensive database of more than 835 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Workday Inc (NYSE:WDAY) based on those filings.
Workday Inc (NYSE:WDAY) investors should be aware of an increase in support from the world’s most elite money managers lately. WDAY was in 55 hedge funds’ portfolios at the end of December. There were 44 hedge funds in our database with WDAY holdings at the end of the previous quarter. Our calculations also showed that WDAY isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
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.
Ken Griffin of Citadel Investment Group
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. With all of this in mind let’s take a peek at the fresh hedge fund action encompassing Workday Inc (NYSE:WDAY).
What does smart money think about Workday Inc (NYSE:WDAY)?
At Q4’s end, a total of 55 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 25% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards WDAY over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Bares Capital Management was the largest shareholder of Workday Inc (NYSE:WDAY), with a stake worth $404.2 million reported as of the end of September. Trailing Bares Capital Management was Citadel Investment Group, which amassed a stake valued at $364.9 million. Duquesne Capital, Coatue Management, and Matrix Capital Management 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 Bares Capital Management allocated the biggest weight to Workday Inc (NYSE:WDAY), around 11.34% of its 13F portfolio. Half Sky Capital is also relatively very bullish on the stock, designating 8.88 percent of its 13F equity portfolio to WDAY.
As industrywide interest jumped, key money managers were leading the bulls’ herd. Alyeska Investment Group, managed by Anand Parekh, created the biggest position in Workday Inc (NYSE:WDAY). Alyeska Investment Group had $101.2 million invested in the company at the end of the quarter. Hari Hariharan’s NWI Management also initiated a $82.2 million position during the quarter. The other funds with brand new WDAY positions are Peter S. Park’s Park West Asset Management, Jonathan Auerbach’s Hound Partners, and James Parsons’s Junto Capital Management.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Workday Inc (NYSE:WDAY) but similarly valued. These stocks are Prudential Financial Inc (NYSE:PRU), Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA), Public Storage (NYSE:PSA), and Canadian Imperial Bank of Commerce (NYSE:CM). This group of stocks’ market caps resemble WDAY’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PRU | 36 | 691519 | 6 |
| BBVA | 8 | 338963 | -2 |
| PSA | 27 | 927343 | 2 |
| CM | 14 | 240820 | -3 |
| Average | 21.25 | 549661 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $550 million. That figure was $2251 million in WDAY’s case. Prudential Financial Inc (NYSE:PRU) is the most popular stock in this table. On the other hand Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Workday Inc (NYSE:WDAY) is more popular among hedge funds. 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 12.9% in 2020 through March 9th but still managed to beat the market by 1.9 percentage points. Hedge funds were also right about betting on WDAY, though not to the same extent, as the stock returned -13.1% during the first quarter (through March 9th) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
