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Smartsheet Inc. (SMAR): Are Hedge Funds Right About This Stock?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Smartsheet Inc. (NYSE:SMAR) and determine whether hedge funds skillfully traded this stock.

Smartsheet Inc. (NYSE:SMAR) was in 47 hedge funds’ portfolios at the end of June. The all time high for this statistics is 50. SMAR has experienced an increase in hedge fund sentiment of late. There were 41 hedge funds in our database with SMAR holdings at the end of March. Our calculations also showed that SMAR 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.

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 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.

Sahm Adrangi Kerrisdale Capital

Sahm Adrangi of Kerrisdale Capital

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. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now let’s check out the latest hedge fund action regarding Smartsheet Inc. (NYSE:SMAR).

Hedge fund activity in Smartsheet Inc. (NYSE:SMAR)

Heading into the third quarter of 2020, a total of 47 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from the first quarter of 2020. By comparison, 46 hedge funds held shares or bullish call options in SMAR a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Whale Rock Capital Management was the largest shareholder of Smartsheet Inc. (NYSE:SMAR), with a stake worth $284.6 million reported as of the end of September. Trailing Whale Rock Capital Management was Coatue Management, which amassed a stake valued at $255.6 million. 12 West Capital Management, Tiger Global Management LLC, and Foxhaven Asset 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 12 West Capital Management allocated the biggest weight to Smartsheet Inc. (NYSE:SMAR), around 11.68% of its 13F portfolio. Cota Capital is also relatively very bullish on the stock, dishing out 10.29 percent of its 13F equity portfolio to SMAR.

With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. D1 Capital Partners, managed by Daniel Sundheim, initiated the biggest position in Smartsheet Inc. (NYSE:SMAR). D1 Capital Partners had $117.3 million invested in the company at the end of the quarter. Stanley Druckenmiller’s Duquesne Capital also initiated a $51.8 million position during the quarter. The following funds were also among the new SMAR investors: David Zorub’s Parsifal Capital Management, Ravee Mehta’s Nishkama Capital, and Sahm Adrangi’s Kerrisdale Capital.

Let’s now take a look at hedge fund activity in other stocks similar to Smartsheet Inc. (NYSE:SMAR). These stocks are SYNNEX Corporation (NYSE:SNX), OGE Energy Corp. (NYSE:OGE), Syneos Health, Inc. (NASDAQ:SYNH), Athene Holding Ltd. (NYSE:ATH), Elbit Systems Ltd. (NASDAQ:ESLT), Robert Half International Inc. (NYSE:RHI), and Reliance Steel & Aluminum Co. (NYSE:RS). This group of stocks’ market valuations match SMAR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SNX 24 502344 0
OGE 25 174922 4
SYNH 29 354964 7
ATH 33 765101 1
ESLT 4 11024 -2
RHI 28 300880 2
RS 27 221183 4
Average 24.3 332917 2.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.3 hedge funds with bullish positions and the average amount invested in these stocks was $333 million. That figure was $2025 million in SMAR’s case. Athene Holding Ltd. (NYSE:ATH) is the most popular stock in this table. On the other hand Elbit Systems Ltd. (NASDAQ:ESLT) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Smartsheet Inc. (NYSE:SMAR) is more popular among hedge funds. Our overall hedge fund sentiment score for SMAR is 88.2. 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 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 gained 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Unfortunately SMAR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SMAR were disappointed as the stock returned 7.1% since the end of the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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