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Were Hedge Funds Right About Crowding Into Workday Inc (WDAY)?

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Asma UL Husna
·6 min read
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Is Workday Inc (NASDAQ:WDAY) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Workday Inc (NASDAQ:WDAY) was in 73 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 58. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. WDAY has experienced an increase in enthusiasm from smart money in recent months. There were 58 hedge funds in our database with WDAY holdings at the end of March. Our calculations also showed that WDAY isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 56 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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Bill Miller
Bill Miller

Bill Miller of Miller Value Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Now let's take a glance at the new hedge fund action encompassing Workday Inc (NASDAQ:WDAY).

What have hedge funds been doing with Workday Inc (NASDAQ:WDAY)?

Heading into the third quarter of 2020, a total of 73 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 26% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in WDAY over the last 20 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, Tiger Global Management LLC was the largest shareholder of Workday Inc (NASDAQ:WDAY), with a stake worth $564 million reported as of the end of September. Trailing Tiger Global Management LLC was Bares Capital Management, which amassed a stake valued at $533.8 million. Viking Global, Generation Investment Management, and Matrix Capital Management 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 Bares Capital Management allocated the biggest weight to Workday Inc (NASDAQ:WDAY), around 13.18% of its 13F portfolio. Half Sky Capital is also relatively very bullish on the stock, setting aside 12.38 percent of its 13F equity portfolio to WDAY.

As aggregate interest increased, key hedge funds have jumped into Workday Inc (NASDAQ:WDAY) headfirst. Kensico Capital, managed by Michael Lowenstein, assembled the biggest position in Workday Inc (NASDAQ:WDAY). Kensico Capital had $137.7 million invested in the company at the end of the quarter. Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners also made a $50.5 million investment in the stock during the quarter. The other funds with brand new WDAY positions are Josh Donfeld and David Rogers's Castle Hook Partners, Bill Miller's Miller Value Partners, and Bijan Modanlou, Joseph Bou-Saba, and Jayaveera Kodali's Alta Park Capital.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Workday Inc (NASDAQ:WDAY) but similarly valued. We will take a look at Edwards Lifesciences Corporation (NYSE:EW), Baxter International Inc. (NYSE:BAX), Itau Unibanco Holding SA (NYSE:ITUB), Biogen Inc. (NASDAQ:BIIB), The Charles Schwab Corporation (NYSE:SCHW), General Dynamics Corporation (NYSE:GD), and Vodafone Group Plc (NASDAQ:VOD). This group of stocks' market valuations are closest to WDAY's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EW,45,1391002,-4 BAX,59,2583223,9 ITUB,20,352115,4 BIIB,63,3268402,-7 SCHW,71,3295929,9 GD,42,5491682,3 VOD,16,726090,2 Average,45.1,2444063,2.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 45.1 hedge funds with bullish positions and the average amount invested in these stocks was $2444 million. That figure was $3445 million in WDAY's case. The Charles Schwab Corporation (NYSE:SCHW) is the most popular stock in this table. On the other hand Vodafone Group Plc (NASDAQ:VOD) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Workday Inc (NASDAQ:WDAY) is more popular among hedge funds. Our overall hedge fund sentiment score for WDAY is 90. 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 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 29.2% in 2020 through October 16th but still managed to beat the market by 19.7 percentage points. Hedge funds were also right about betting on WDAY as the stock returned 22.5% since the end of June (through 10/16) 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.

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