Did Hedge Funds Make The Right Call On Upwork Inc. (UPWK) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). 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 Upwork Inc. (NASDAQ:UPWK) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Upwork Inc. (NASDAQ:UPWK) worth your attention right now? Prominent investors were taking a pessimistic view. The number of bullish hedge fund positions went down by 2 lately. Our calculations also showed that UPWK 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).

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

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David Brown Hawk Ridge Partners

David Brown of Hawk Ridge Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. With all of this in mind let’s take a glance at the recent hedge fund action regarding Upwork Inc. (NASDAQ:UPWK).

What have hedge funds been doing with Upwork Inc. (NASDAQ:UPWK)?

Heading into the second quarter of 2020, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the previous quarter. On the other hand, there were a total of 9 hedge funds with a bullish position in UPWK a year ago. So, let’s review 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 Ancient Art (Teton Capital), which reported holding $36 million worth of stock at the end of September. It was followed by Hawk Ridge Management with a $27.1 million position. Other investors bullish on the company included Renaissance Technologies, Millennium Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Ancient Art (Teton Capital) allocated the biggest weight to Upwork Inc. (NASDAQ:UPWK), around 5.8% of its 13F portfolio. Hawk Ridge Management is also relatively very bullish on the stock, dishing out 4.57 percent of its 13F equity portfolio to UPWK.

Seeing as Upwork Inc. (NASDAQ:UPWK) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there was a specific group of hedgies that slashed their entire stakes heading into Q4. Interestingly, Sharlyn C. Heslam’s Stockbridge Partners dumped the biggest position of all the hedgies tracked by Insider Monkey, worth close to $56.9 million in stock. Matt Sirovich and Jeremy Mindich’s fund, Scopia Capital, also sold off its stock, about $40.5 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks similar to Upwork Inc. (NASDAQ:UPWK). These stocks are German American Bancorp., Inc. (NASDAQ:GABC), Orchard Therapeutics plc (NASDAQ:ORTX), Ingles Markets, Incorporated (NASDAQ:IMKTA), and OneSpan Inc. (NASDAQ:OSPN). This group of stocks’ market caps are closest to UPWK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GABC 4 10399 -1
ORTX 19 200945 -3
IMKTA 11 53738 -2
OSPN 13 63457 0
Average 11.75 82135 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $82 million. That figure was $108 million in UPWK’s case. Orchard Therapeutics plc (NASDAQ:ORTX) is the most popular stock in this table. On the other hand German American Bancorp., Inc. (NASDAQ:GABC) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Upwork Inc. (NASDAQ:UPWK) 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 UPWK as the stock returned 123.9% 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.