Hedge funds are not perfect. They have their bad picks just like everyone else. Facebook, a stock hedge funds have loved dearly, lost nearly 40% of its value at one point in 2018. Although hedge funds are not perfect, their consensus picks do deliver solid returns, however. Our data show the top 20 S&P 500 stocks among hedge funds beat the S&P 500 Index by nearly 10 percentage points so far in 2019. Because hedge funds have a lot of resources and their consensus picks do well, we pay attention to what they think. In this article, we analyze what the elite funds think of Upwork Inc. (NASDAQ:UPWK).
Upwork Inc. (NASDAQ:UPWK) investors should be aware of an increase in hedge fund sentiment in recent months. UPWK was in 19 hedge funds' portfolios at the end of September. There were 10 hedge funds in our database with UPWK positions at the end of the previous quarter. Our calculations also showed that UPWK isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_193003" align="aligncenter" width="600"] Chuck Royce of Royce & Associates[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. With all of this in mind let's take a look at the recent hedge fund action surrounding Upwork Inc. (NASDAQ:UPWK).
What does smart money think about Upwork Inc. (NASDAQ:UPWK)?
At the end of the third quarter, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 90% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards UPWK over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Scopia Capital held the most valuable stake in Upwork Inc. (NASDAQ:UPWK), which was worth $58.3 million at the end of the third quarter. On the second spot was Teton Capital which amassed $36.3 million worth of shares. Royce & Associates, Citadel Investment Group, and Polar Capital 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 Teton Capital allocated the biggest weight to Upwork Inc. (NASDAQ:UPWK), around 6.02% of its 13F portfolio. Scopia Capital is also relatively very bullish on the stock, designating 3.41 percent of its 13F equity portfolio to UPWK.
Consequently, some big names were breaking ground themselves. Scopia Capital, managed by Matt Sirovich and Jeremy Mindich, established the most valuable position in Upwork Inc. (NASDAQ:UPWK). Scopia Capital had $58.3 million invested in the company at the end of the quarter. Chuck Royce's Royce & Associates also made a $6.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Brian Ashford-Russell and Tim Woolley's Polar Capital, Sculptor Capital, and Renaissance Technologies.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Upwork Inc. (NASDAQ:UPWK) but similarly valued. We will take a look at Eventbrite, Inc. (NYSE:EB), Suburban Propane Partners LP (NYSE:SPH), Inspire Medical Systems, Inc. (NYSE:INSP), and Rambus Inc. (NASDAQ:RMBS). This group of stocks' market valuations are similar to UPWK's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EB,23,267307,2 SPH,4,83169,0 INSP,18,288277,-1 RMBS,22,153424,6 Average,16.75,198044,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $198 million. That figure was $123 million in UPWK's case. Eventbrite, Inc. (NYSE:EB) is the most popular stock in this table. On the other hand Suburban Propane Partners LP (NYSE:SPH) is the least popular one with only 4 bullish hedge fund positions. Upwork Inc. (NASDAQ:UPWK) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately UPWK wasn't nearly as popular as these 20 stocks and hedge funds that were betting on UPWK were disappointed as the stock returned -12.5% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.