Were Hedge Funds Right About Atlassian Corporation Plc (TEAM)?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Atlassian Corporation Plc (NASDAQ:TEAM).

Atlassian Corporation Plc (NASDAQ:TEAM) shareholders have witnessed a decrease in activity from the world’s largest hedge funds in recent months. Atlassian Corporation Plc (NASDAQ:TEAM) was in 55 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 62. Our calculations also showed that TEAM 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 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 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 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.

Blair Levinsky of Waratah Capital Advisors

Blair Levinsky of Waratah Capital Advisors

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. Keeping this in mind we’re going to analyze the latest hedge fund action encompassing Atlassian Corporation Plc (NASDAQ:TEAM).

What have hedge funds been doing with Atlassian Corporation Plc (NASDAQ:TEAM)?

At the end of June, a total of 55 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards TEAM over the last 20 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Renaissance Technologies, holds the largest position in Atlassian Corporation Plc (NASDAQ:TEAM). Renaissance Technologies has a $1.2321 billion position in the stock, comprising 1.1% of its 13F portfolio. The second largest stake is held by Chase Coleman of Tiger Global Management LLC, with a $272.2 million position; 1.1% of its 13F portfolio is allocated to the stock. Other professional money managers with similar optimism encompass Michael Pausic’s Foxhaven Asset Management, D. E. Shaw’s D E Shaw and Rajiv Jain’s GQG Partners. In terms of the portfolio weights assigned to each position Strategy Capital allocated the biggest weight to Atlassian Corporation Plc (NASDAQ:TEAM), around 15.4% of its 13F portfolio. Center Lake Capital is also relatively very bullish on the stock, designating 7.94 percent of its 13F equity portfolio to TEAM.

Because Atlassian Corporation Plc (NASDAQ:TEAM) has experienced bearish sentiment from the smart money, logic holds that there is a sect of hedge funds who were dropping their full holdings heading into Q3. Interestingly, Lone Pine Capital said goodbye to the biggest stake of the 750 funds watched by Insider Monkey, totaling close to $190.6 million in stock, and Scott Bessent’s Key Square Capital Management was right behind this move, as the fund dropped about $29.7 million worth. These moves are important to note, as aggregate hedge fund interest fell by 4 funds heading into Q3.

Let’s also examine hedge fund activity in other stocks similar to Atlassian Corporation Plc (NASDAQ:TEAM). We will take a look at Honda Motor Co Ltd (NYSE:HMC), Workday Inc (NASDAQ:WDAY), Edwards Lifesciences Corporation (NYSE:EW), Baxter International Inc. (NYSE:BAX), Itau Unibanco Holding SA (NYSE:ITUB), Biogen Inc. (NASDAQ:BIIB), and The Charles Schwab Corporation (NYSE:SCHW). This group of stocks’ market values are closest to TEAM’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HMC 10 296833 2
WDAY 73 3444523 15
EW 45 1391002 -4
BAX 59 2583223 9
ITUB 20 352115 4
BIIB 63 3268402 -7
SCHW 71 3295929 9
Average 48.7 2090290 4

View table here if you experience formatting issues.

As you can see these stocks had an average of 48.7 hedge funds with bullish positions and the average amount invested in these stocks was $2090 million. That figure was $2873 million in TEAM’s case. Workday Inc (NYSE:WDAY) is the most popular stock in this table. On the other hand Honda Motor Co Ltd (NYSE:HMC) is the least popular one with only 10 bullish hedge fund positions. Atlassian Corporation Plc (NASDAQ:TEAM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TEAM is 63.3. 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 29.2% in 2020 through October 16th and still beat the market by 19.7 percentage points. Hedge funds were also right about betting on TEAM as the stock returned 15.1% since the end of Q2 (through 10/16) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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