Was The Smart Money Right About Smartsheet Inc. (SMAR)?

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Smartsheet Inc. (NYSE:SMAR).

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 shareholders have witnessed an increase in support from the world’s most elite money managers in recent months. There were 41 hedge funds in our database with SMAR positions at the end of the first quarter. 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.

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 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 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.

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 best artificial intelligence stocks to pick the best growth 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. With all of this in mind let’s take a peek at the latest hedge fund action surrounding 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 were bullish on this stock, a change of 15% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SMAR over the last 20 quarters. 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 Smartsheet Inc. (NYSE:SMAR) was held by Whale Rock Capital Management, which reported holding $284.6 million worth of stock at the end of September. It was followed by Coatue Management with a $255.6 million position. Other investors bullish on the company included 12 West Capital Management, Tiger Global Management LLC, and Foxhaven Asset Management. 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, designating 10.29 percent of its 13F equity portfolio to SMAR.

Now, specific money managers were breaking ground themselves. D1 Capital Partners, managed by Daniel Sundheim, established the most valuable 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 made a $51.8 million investment in the stock 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 go over hedge fund activity in other stocks – not necessarily in the same industry as Smartsheet Inc. (NYSE:SMAR) but similarly valued. We will take a look at 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 caps are similar to SMAR’s market cap.

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 30% in 2020 through October 23rd and still beat the market by 21 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 10.2% since the end of the second quarter (through 10/23) 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.

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