At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Tiger Global because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.
Appian Corporation (NASDAQ:APPN) has seen a decrease in enthusiasm from smart money recently. Our calculations also showed that APPN 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a look at the new hedge fund action encompassing Appian Corporation (NASDAQ:APPN).
How are hedge funds trading Appian Corporation (NASDAQ:APPN)?
Heading into the third quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -37% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in APPN over the last 16 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
[caption id="attachment_670343" align="aligncenter" width="473"] Colin Moran Abdiel Capital[/caption]
More specifically, Abdiel Capital Advisors was the largest shareholder of Appian Corporation (NASDAQ:APPN), with a stake worth $269.1 million reported as of the end of March. Trailing Abdiel Capital Advisors was D E Shaw, which amassed a stake valued at $20.8 million. StackLine Partners, Engle Capital, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.
Because Appian Corporation (NASDAQ:APPN) has faced declining sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain "tier" of fund managers that elected to cut their positions entirely in the second quarter. It's worth mentioning that Paul Marshall and Ian Wace's Marshall Wace LLP dropped the biggest investment of all the hedgies watched by Insider Monkey, valued at an estimated $2.9 million in stock. James Thomas Berylson's fund, Berylson Capital Partners, also said goodbye to its stock, about $2.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 7 funds in the second quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Appian Corporation (NASDAQ:APPN) but similarly valued. We will take a look at Universal Forest Products, Inc. (NASDAQ:UFPI), Power Integrations Inc (NASDAQ:POWI), PDC Energy Inc (NASDAQ:PDCE), and Penn National Gaming, Inc (NASDAQ:PENN). This group of stocks' market caps are similar to APPN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UFPI,17,64097,-3 POWI,9,83455,3 PDCE,14,258405,0 PENN,20,269168,-4 Average,15,168781,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $169 million. That figure was $336 million in APPN's case. Penn National Gaming, Inc (NASDAQ:PENN) is the most popular stock in this table. On the other hand Power Integrations Inc (NASDAQ:POWI) is the least popular one with only 9 bullish hedge fund positions. Appian Corporation (NASDAQ:APPN) 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 APPN as the stock returned 31.7% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.