The first quarter was a breeze as Powell pivoted, and China seemed eager to reach a deal with Trump. Both the S&P 500 and Russell 2000 delivered very strong gains as a result, with the Russell 2000, which is composed of smaller companies, outperforming the large-cap stocks slightly during the first quarter. Unfortunately sentiment shifted in May and August as this time China pivoted and Trump put more pressure on China by increasing tariffs. Hedge funds' top 20 stock picks performed spectacularly in this volatile environment. These stocks delivered a total gain of 24.4% through September 30th, vs. a gain of 20.4% for the S&P 500 ETF. In this article we will look at how this market volatility affected the sentiment of hedge funds towards Digital Turbine Inc (NASDAQ:APPS), and what that likely means for the prospects of the company and its stock.
Digital Turbine Inc (NASDAQ:APPS) was in 11 hedge funds' portfolios at the end of June. APPS investors should pay attention to a decrease in hedge fund sentiment in recent months. There were 15 hedge funds in our database with APPS holdings at the end of the previous quarter. Our calculations also showed that APPS 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 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. Let's check out the fresh hedge fund action regarding Digital Turbine Inc (NASDAQ:APPS).
How have hedgies been trading Digital Turbine Inc (NASDAQ:APPS)?
At Q2's end, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -27% from one quarter earlier. By comparison, 11 hedge funds held shares or bullish call options in APPS a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Trellus Management Company held the most valuable stake in Digital Turbine Inc (NASDAQ:APPS), which was worth $4.2 million at the end of the second quarter. On the second spot was Arrowstreet Capital which amassed $4 million worth of shares. Moreover, P.A.W. CAPITAL PARTNERS, Manatuck Hill Partners, and Citadel Investment Group were also bullish on Digital Turbine Inc (NASDAQ:APPS), allocating a large percentage of their portfolios to this stock.
Because Digital Turbine Inc (NASDAQ:APPS) has faced falling interest from the entirety of the hedge funds we track, we can see that there is a sect of hedge funds that slashed their positions entirely by the end of the second quarter. At the top of the heap, Richard Driehaus's Driehaus Capital dumped the biggest stake of the "upper crust" of funds watched by Insider Monkey, comprising an estimated $1.4 million in stock, and Benjamin A. Smith's Laurion Capital Management was right behind this move, as the fund said goodbye to about $1.2 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 4 funds by the end of the second quarter.
Let's now review hedge fund activity in other stocks similar to Digital Turbine Inc (NASDAQ:APPS). We will take a look at Earthstone Energy, Inc. (NYSE:ESTE), Atlantic Capital Bancshares, Inc. (NASDAQ:ACBI), Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL), and Park-Ohio Holdings Corp. (NASDAQ:PKOH). All of these stocks' market caps resemble APPS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ESTE,7,2987,0 ACBI,12,74782,0 RIGL,14,76881,-1 PKOH,7,32190,0 Average,10,46710,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $47 million. That figure was $18 million in APPS's case. Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL) is the most popular stock in this table. On the other hand Earthstone Energy, Inc. (NYSE:ESTE) is the least popular one with only 7 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on APPS as the stock returned 29% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
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