You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund managers like Jeff Ubben, George Soros and Seth Klarman hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.
American Software, Inc. (NASDAQ:AMSWA) has seen a decrease in activity from the world's largest hedge funds in recent months. Our calculations also showed that AMSWA isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike other investors who track every movement of the 25 largest hedge funds, our long-short investment strategy relies on hedge fund buy/sell signals given by the 100 best performing hedge funds. We're going to take a look at the new hedge fund action encompassing American Software, Inc. (NASDAQ:AMSWA).
What does smart money think about American Software, Inc. (NASDAQ:AMSWA)?
Heading into the third quarter of 2019, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -45% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AMSWA over the last 16 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Renaissance Technologies, holds the largest position in American Software, Inc. (NASDAQ:AMSWA). Renaissance Technologies has a $26.1 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On Renaissance Technologies's heels is Cloverdale Capital Management, managed by C. Jonathan Gattman, which holds a $14.2 million position; 9.8% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors with similar optimism include Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Chuck Royce's Royce & Associates and John Overdeck and David Siegel's Two Sigma Advisors.
Since American Software, Inc. (NASDAQ:AMSWA) has witnessed declining sentiment from hedge fund managers, it's safe to say that there was a specific group of hedgies who were dropping their entire stakes heading into Q3. It's worth mentioning that Paul Marshall and Ian Wace's Marshall Wace LLP dropped the biggest position of the 750 funds monitored by Insider Monkey, worth about $0.2 million in stock. Peter Algert and Kevin Coldiron's fund, Algert Coldiron Investors, also said goodbye to its stock, about $0.1 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 5 funds heading into Q3.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as American Software, Inc. (NASDAQ:AMSWA) but similarly valued. These stocks are Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL), Park-Ohio Holdings Corp. (NASDAQ:PKOH), Tuniu Corporation (NASDAQ:TOUR), and Carrols Restaurant Group, Inc. (NASDAQ:TAST). All of these stocks' market caps are closest to AMSWA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RIGL,14,76881,-1 PKOH,7,32190,0 TOUR,4,23118,-1 TAST,20,97829,1 Average,11.25,57505,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $58 million. That figure was $45 million in AMSWA's case. Carrols Restaurant Group, Inc. (NASDAQ:TAST) is the most popular stock in this table. On the other hand Tuniu Corporation (NASDAQ:TOUR) is the least popular one with only 4 bullish hedge fund positions. American Software, Inc. (NASDAQ:AMSWA) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on AMSWA as the stock returned 15.1% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.