We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of AppFolio Inc (NASDAQ:APPF).
AppFolio Inc (NASDAQ:APPF) investors should be aware of an increase in enthusiasm from smart money recently. APPF was in 16 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 12 hedge funds in our database with APPF holdings at the end of the previous quarter. Our calculations also showed that APPF isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Louis Navellier of Navellier & Associates
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s analyze the latest hedge fund action encompassing AppFolio Inc (NASDAQ:APPF).
What does smart money think about AppFolio Inc (NASDAQ:APPF)?
At Q4’s end, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards APPF over the last 18 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
Among these funds, Ashe Capital held the most valuable stake in AppFolio Inc (NASDAQ:APPF), which was worth $179.3 million at the end of the third quarter. On the second spot was Echo Street Capital Management which amassed $44.2 million worth of shares. Arrowstreet Capital, Navellier & Associates, and D E Shaw 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 Ashe Capital allocated the biggest weight to AppFolio Inc (NASDAQ:APPF), around 13.67% of its 13F portfolio. Echo Street Capital Management is also relatively very bullish on the stock, dishing out 0.68 percent of its 13F equity portfolio to APPF.
As one would reasonably expect, specific money managers have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, established the most valuable position in AppFolio Inc (NASDAQ:APPF). Balyasny Asset Management had $1.9 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also initiated a $1.2 million position during the quarter. The other funds with brand new APPF positions are Parvinder Thiara’s Athanor Capital, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Israel Englander’s Millennium Management.
Let’s go over hedge fund activity in other stocks similar to AppFolio Inc (NASDAQ:APPF). We will take a look at ASGN Incorporated (NYSE:ASGN), SAGE Therapeutics Inc (NASDAQ:SAGE), FibroGen Inc (NASDAQ:FGEN), and Adaptive Biotechnologies Corporation (NASDAQ:ADPT). All of these stocks’ market caps are closest to APPF’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ASGN | 18 | 98512 | 1 |
| SAGE | 35 | 339592 | 3 |
| FGEN | 21 | 359960 | -4 |
| ADPT | 22 | 2003392 | 0 |
| Average | 24 | 700364 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $700 million. That figure was $240 million in APPF’s case. SAGE Therapeutics Inc (NASDAQ:SAGE) is the most popular stock in this table. On the other hand ASGN Incorporated (NYSE:ASGN) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks AppFolio Inc (NASDAQ:APPF) is even less popular than ASGN. Hedge funds clearly dropped the ball on APPF as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but still beat the market by 5.5 percentage points. A small number of hedge funds were also right about betting on APPF as the stock returned -8.1% during the same time period and outperformed the market by an even larger margin.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
