The market has been volatile in the last few months as the Federal Reserve finalized its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q3 and the beginning of Q4. In this article, we analyze what the smart money thinks of Digital Turbine Inc (NASDAQ:APPS) and find out how it is affected by hedge funds' moves.
Digital Turbine Inc (NASDAQ:APPS) has experienced an increase in hedge fund interest of late. APPS was in 19 hedge funds' portfolios at the end of September. There were 11 hedge funds in our database with APPS positions at the end of the previous quarter. Our calculations also showed that APPS isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_189632" align="aligncenter" width="450"] David Harding of Winton Capital Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a look at the fresh hedge fund action regarding Digital Turbine Inc (NASDAQ:APPS).
What have hedge funds been doing with Digital Turbine Inc (NASDAQ:APPS)?
At the end of the third quarter, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 73% from one quarter earlier. By comparison, 7 hedge funds held shares or bullish call options in APPS a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Driehaus Capital was the largest shareholder of Digital Turbine Inc (NASDAQ:APPS), with a stake worth $5.8 million reported as of the end of September. Trailing Driehaus Capital was P.A.W. Capital Partners, which amassed a stake valued at $4.7 million. Trellus Management Company, Arrowstreet Capital, and Two Sigma Advisors 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 P.A.W. Capital Partners allocated the biggest weight to Digital Turbine Inc (NASDAQ:APPS), around 5.87% of its 13F portfolio. Trellus Management Company is also relatively very bullish on the stock, earmarking 4.19 percent of its 13F equity portfolio to APPS.
As one would reasonably expect, specific money managers have jumped into Digital Turbine Inc (NASDAQ:APPS) headfirst. Driehaus Capital, managed by Richard Driehaus, initiated the most outsized position in Digital Turbine Inc (NASDAQ:APPS). Driehaus Capital had $5.8 million invested in the company at the end of the quarter. Cliff Asness's AQR Capital Management also initiated a $2.4 million position during the quarter. The other funds with brand new APPS positions are David Harding's Winton Capital Management, Noam Gottesman's GLG Partners, and Peter Algert and Kevin Coldiron's Algert Coldiron Investors.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Digital Turbine Inc (NASDAQ:APPS) but similarly valued. These stocks are Intersect ENT Inc (NASDAQ:XENT), First Financial Corp (NASDAQ:THFF), Peoples Utah Bancorp (NASDAQ:PUB), and Gannett Co., Inc. (NYSE:NEWM). This group of stocks' market valuations are closest to APPS's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position XENT,20,209156,5 THFF,8,14815,-1 PUB,6,16721,3 NEWM,19,164290,5 Average,13.25,101246,3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $101 million. That figure was $33 million in APPS's case. Intersect ENT Inc (NASDAQ:XENT) is the most popular stock in this table. On the other hand Peoples Utah Bancorp (NASDAQ:PUB) is the least popular one with only 6 bullish hedge fund positions. Digital Turbine Inc (NASDAQ:APPS) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on APPS as the stock returned 37.7% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.