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

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Workday Inc (NASDAQ:WDAY) and determine whether the smart money was really smart about this stock.

Workday Inc (NASDAQ:WDAY) was in 58 hedge funds’ portfolios at the end of March. WDAY shareholders have witnessed an increase in hedge fund interest recently. There were 55 hedge funds in our database with WDAY holdings at the end of the previous quarter. Our calculations also showed that WDAY 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.

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 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 Blood

David Blood of Generation Investment Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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 gold 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 recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a gander at the latest hedge fund action surrounding Workday Inc (NASDAQ:WDAY).

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

Heading into the second quarter of 2020, a total of 58 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in WDAY over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Bares Capital Management was the largest shareholder of Workday Inc (NASDAQ:WDAY), with a stake worth $394.8 million reported as of the end of September. Trailing Bares Capital Management was Viking Global, which amassed a stake valued at $320.6 million. Tiger Global Management LLC, Duquesne Capital, and Citadel Investment Group 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 14.23% of its 13F portfolio. Half Sky Capital is also relatively very bullish on the stock, dishing out 11.46 percent of its 13F equity portfolio to WDAY.

Now, specific money managers have jumped into Workday Inc (NASDAQ:WDAY) headfirst. Viking Global, managed by Andreas Halvorsen, established the biggest position in Workday Inc (NASDAQ:WDAY). Viking Global had $320.6 million invested in the company at the end of the quarter. David Blood and Al Gore’s Generation Investment Management also made a $147.7 million investment in the stock during the quarter. The other funds with brand new WDAY positions are Michael Pausic’s Foxhaven Asset Management, Dmitry Balyasny’s Balyasny Asset Management, and Dennis Puri and Oliver Keller’s Hunt Lane Capital.

Let’s now review hedge fund activity in other stocks similar to Workday Inc (NASDAQ:WDAY). These stocks are Canadian Pacific Railway Limited (NYSE:CP), The Bank of New York Mellon Corporation (NYSE:BK), Mizuho Financial Group Inc. (NYSE:MFG), and Dell Technologies Inc. (NYSE:DELL). This group of stocks’ market valuations are closest to WDAY’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CP 32 1568644 3
BK 52 4401625 -6
MFG 6 23691 1
DELL 39 1967686 -2
Average 32.25 1990412 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.25 hedge funds with bullish positions and the average amount invested in these stocks was $1990 million. That figure was $2260 million in WDAY’s case. The Bank of New York Mellon Corporation (NYSE:BK) is the most popular stock in this table. On the other hand Mizuho Financial Group Inc. (NYSE:MFG) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Workday Inc (NASDAQ:WDAY) 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 WDAY as the stock returned 43.9% 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.