Hedge funds don’t get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don’t realize is that 100% of the passive funds didn’t see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March. In this article we will take a closer look at hedge fund sentiment surrounding Slack Technologies Inc (NYSE:WORK).
Hedge fund interest in Slack Technologies Inc (NYSE:WORK) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Ubiquiti Inc. (NYSE:UI), China Eastern Airlines Corp. Ltd. (NYSE:CEA), and Cna Financial Corporation (NYSE:CNA) to gather more data points. Our calculations also showed that WORK isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Glen Kacher of Light Street Capital
We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with 77% accuracy, so we check out his stock picks. A former hedge fund manager is pitching the “next Amazon” in this video; again we are listening. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now let’s take a glance at the new hedge fund action surrounding Slack Technologies Inc (NYSE:WORK).
How are hedge funds trading Slack Technologies Inc (NYSE:WORK)?
At Q4’s end, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in WORK over the last 18 quarters. So, let’s see 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, designating 4.99 percent of its 13F equity portfolio to WORK.
Judging by the fact that Slack Technologies Inc (NYSE:WORK) has faced a decline in interest from hedge fund managers, we can see that there lies a certain “tier” of fund managers that slashed their entire stakes in the third quarter. Intriguingly, James Woodson Davis’s Woodson Capital Management sold off the biggest position of the “upper crust” of funds monitored by Insider Monkey, valued at close to $14.5 million in stock, and Andrew Bellas’s General Equity Partners was right behind this move, as the fund said goodbye to about $13.4 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine 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 Equitable Holdings, Inc. (NYSE:EQH). All of these 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. 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 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 1.0% in 2020 through May 1st but still beat the market by 12.9 percentage points. Hedge funds were also right about betting on WORK as the stock returned 17.3% in 2020 (through May 1st) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
