Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Slack Technologies Inc (NYSE:WORK).
Is Slack Technologies Inc (NYSE:WORK) the right pick for your portfolio? Investors who are in the know were getting less optimistic. The number of long hedge fund positions shrunk by 6 in recent months. Slack Technologies Inc (NYSE:WORK) was in 60 hedge funds' portfolios at the end of March. The all time high for this statistic is 66. Our calculations also showed that WORK isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 66 hedge funds in our database with WORK holdings at the end of December.
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 115 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.
Matthew Halbower of Pentwater Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind we're going to take a gander at the fresh hedge fund action regarding Slack Technologies Inc (NYSE:WORK).
Do Hedge Funds Think WORK Is A Good Stock To Buy Now?
At first quarter's end, a total of 60 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the previous quarter. By comparison, 31 hedge funds held shares or bullish call options in WORK a year ago. With the smart money's sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
The largest stake in Slack Technologies Inc (NYSE:WORK) was held by Pentwater Capital Management, which reported holding $789.8 million worth of stock at the end of December. It was followed by OZ Management with a $404.9 million position. Other investors bullish on the company included Citadel Investment Group, Millennium Management, and Alpine Associates. In terms of the portfolio weights assigned to each position 0 allocated the biggest weight to Slack Technologies Inc (NYSE:WORK), around 35.88% of its 13F portfolio. 0 is also relatively very bullish on the stock, designating 8.28 percent of its 13F equity portfolio to WORK.
Seeing as Slack Technologies Inc (NYSE:WORK) has faced declining sentiment from the smart money, it's safe to say that there lies a certain "tier" of funds that elected to cut their entire stakes in the first quarter. At the top of the heap, Benjamin Pass's TOMS Capital sold off the largest position of all the hedgies tracked by Insider Monkey, totaling close to $35.4 million in stock, and Michael Kharitonov and Jon David McAuliffe's Voleon Capital was right behind this move, as the fund dumped about $24.2 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 6 funds in the first quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Slack Technologies Inc (NYSE:WORK) but similarly valued. We will take a look at Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk ( (NYSE:TLK), CDW Corporation (NASDAQ:CDW), Zscaler, Inc. (NASDAQ:ZS), PG&E Corporation (NYSE:PCG), Arista Networks Inc (NYSE:ANET), Yandex NV (NASDAQ:YNDX), and Li Auto Inc. (NASDAQ:LI). All of these stocks' market caps resemble WORK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TLK,4,158462,0 CDW,30,1908866,-13 ZS,34,809507,-1 PCG,65,5665287,-1 ANET,26,253852,-9 YNDX,29,1260108,-5 LI,18,493824,-13 Average,29.4,1507129,-6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.4 hedge funds with bullish positions and the average amount invested in these stocks was $1507 million. That figure was $4262 million in WORK's case. PG&E Corporation (NYSE:PCG) is the most popular stock in this table. On the other hand Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk ( (NYSE:TLK) is the least popular one with only 4 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 overall hedge fund sentiment score for WORK is 72.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th and still beat the market by 3.3 percentage points. Hedge funds were also right about betting on WORK as the stock returned 9.5% since the end of Q1 (through 6/11) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.