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Hedge Funds Aren’t Crazy About Upwork Inc. (UPWK) Anymore

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In this article we will check out the progression of hedge fund sentiment towards Upwork Inc. (NASDAQ:UPWK) and determine whether it 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.

Upwork Inc. (NASDAQ:UPWK) was in 26 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 34. UPWK investors should pay attention to a decrease in support from the world's most elite money managers recently. There were 32 hedge funds in our database with UPWK positions at the end of the first quarter. Our calculations also showed that UPWK isn't among the 30 most popular stocks among hedge funds (click for Q2 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 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 79 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.

Chuck Royce
Chuck Royce

Chuck Royce of Royce & Associates

At Insider Monkey, we scour multiple sources to uncover 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 EV 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 review the latest hedge fund action surrounding Upwork Inc. (NASDAQ:UPWK).

Do Hedge Funds Think UPWK Is A Good Stock To Buy Now?

Heading into the third quarter of 2021, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards UPWK over the last 24 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.

The largest stake in Upwork Inc. (NASDAQ:UPWK) was held by SRS Investment Management, which reported holding $117.4 million worth of stock at the end of June. It was followed by Ancient Art (Teton Capital) with a $67.8 million position. Other investors bullish on the company included Royce & Associates, Driehaus Capital, and Kent Lake Capital. In terms of the portfolio weights assigned to each position IvyRock Asset Management allocated the biggest weight to Upwork Inc. (NASDAQ:UPWK), around 10.83% of its 13F portfolio. Kent Lake Capital is also relatively very bullish on the stock, earmarking 9.82 percent of its 13F equity portfolio to UPWK.

Seeing as Upwork Inc. (NASDAQ:UPWK) has witnessed a decline in interest from the entirety of the hedge funds we track, it's safe to say that there exists a select few hedge funds who sold off their entire stakes in the second quarter. Interestingly, David Brown's Hawk Ridge Management said goodbye to the biggest position of all the hedgies watched by Insider Monkey, totaling about $83.8 million in stock, and Jack Woodruff's Candlestick Capital Management was right behind this move, as the fund said goodbye to about $31.3 million worth. These moves are important to note, as total hedge fund interest dropped by 6 funds in the second quarter.

Let's also examine hedge fund activity in other stocks similar to Upwork Inc. (NASDAQ:UPWK). These stocks are IAA, Inc. (NYSE:IAA), Gildan Activewear Inc (NYSE:GIL), The New York Times Company (NYSE:NYT), The AZEK Company Inc. (NYSE:AZEK), Woori Financial Group Inc. (NYSE:WF), People's United Financial, Inc. (NASDAQ:PBCT), and Casey's General Stores, Inc. (NASDAQ:CASY). This group of stocks' market values match UPWK's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IAA,33,829694,-2 GIL,19,726018,2 NYT,48,2224644,0 AZEK,37,407782,8 WF,2,3694,0 PBCT,24,219174,4 CASY,24,130468,13 Average,26.7,648782,3.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.7 hedge funds with bullish positions and the average amount invested in these stocks was $649 million. That figure was $428 million in UPWK's case. The New York Times Company (NYSE:NYT) is the most popular stock in this table. On the other hand Woori Financial Group Inc. (NYSE:WF) is the least popular one with only 2 bullish hedge fund positions. Upwork Inc. (NASDAQ:UPWK) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for UPWK is 48. 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 24.9% in 2021 through October 15th and still beat the market by 4.5 percentage points. A small number of hedge funds were also right about betting on UPWK as the stock returned 1.6% since the end of the second quarter (through 10/15) and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.