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 Atlassian Corporation Plc (NASDAQ:TEAM) and determine whether hedge funds had an edge regarding this stock.
Is Atlassian Corporation Plc (NASDAQ:TEAM) a healthy stock for your portfolio? The smart money was in a pessimistic mood. The number of bullish hedge fund bets decreased by 3 in recent months. Our calculations also showed that TEAM 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). TEAM was in 59 hedge funds’ portfolios at the end of the first quarter of 2020. There were 62 hedge funds in our database with TEAM positions at the end of the previous quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. 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 peek at the new hedge fund action regarding Atlassian Corporation Plc (NASDAQ:TEAM).
What does smart money think about Atlassian Corporation Plc (NASDAQ:TEAM)?
Heading into the second quarter of 2020, a total of 59 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the fourth quarter of 2019. On the other hand, there were a total of 36 hedge funds with a bullish position in TEAM a year ago. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Renaissance Technologies, holds the most valuable position in Atlassian Corporation Plc (NASDAQ:TEAM). Renaissance Technologies has a $883.1 million position in the stock, comprising 0.9% of its 13F portfolio. On Renaissance Technologies’s heels is Tiger Global Management LLC, led by Chase Coleman, holding a $207.3 million position; the fund has 1.2% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism contain Robert Pitts’s Steadfast Capital Management, Lone Pine Capital and Rajiv Jain’s GQG Partners. In terms of the portfolio weights assigned to each position Strategy Capital allocated the biggest weight to Atlassian Corporation Plc (NASDAQ:TEAM), around 19.86% of its 13F portfolio. Center Lake Capital is also relatively very bullish on the stock, setting aside 10.01 percent of its 13F equity portfolio to TEAM.
Due to the fact that Atlassian Corporation Plc (NASDAQ:TEAM) has faced bearish sentiment from the smart money, we can see that there lies a certain “tier” of hedge funds who were dropping their positions entirely in the first quarter. Intriguingly, Steve Cohen’s Point72 Asset Management sold off the largest stake of all the hedgies tracked by Insider Monkey, worth about $97.7 million in stock. Gabriel Plotkin’s fund, Melvin Capital Management, also cut its stock, about $48.1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 3 funds in the first quarter.
Let’s go over hedge fund activity in other stocks similar to Atlassian Corporation Plc (NASDAQ:TEAM). These stocks are Thomson Reuters Corporation (NYSE:TRI), UBS Group AG (NYSE:UBS), ConocoPhillips (NYSE:COP), and Roper Technologies Inc. (NYSE:ROP). This group of stocks’ market caps resemble TEAM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TRI | 22 | 330343 | 1 |
| UBS | 15 | 211262 | 1 |
| COP | 54 | 961915 | -8 |
| ROP | 38 | 1015909 | -2 |
| Average | 32.25 | 629857 | -2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.25 hedge funds with bullish positions and the average amount invested in these stocks was $630 million. That figure was $2586 million in TEAM’s case. ConocoPhillips (NYSE:COP) is the most popular stock in this table. On the other hand UBS Group AG (NYSE:UBS) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Atlassian Corporation Plc (NASDAQ:TEAM) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on TEAM as the stock returned 31.3% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.
