Were Hedge Funds Right About Dumping Appian Corporation (APPN)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 6 years and analyze what the smart money thinks of Appian Corporation (NASDAQ:APPN) based on that data.

Is Appian Corporation (NASDAQ:APPN) a buy, sell, or hold? The smart money was turning less bullish. The number of long hedge fund positions were trimmed by 11 in recent months. Appian Corporation (NASDAQ:APPN) was in 13 hedge funds’ portfolios at the end of June. The all time high for this statistic is 24. Our calculations also showed that APPN isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 24 hedge funds in our database with APPN holdings at the end of March.

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 S&P 500 ETFs by 79 percentage points since March 2017 (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.

David E. Shaw of D.E. Shaw

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we’re going to check out the fresh hedge fund action encompassing Appian Corporation (NASDAQ:APPN).

Do Hedge Funds Think APPN Is A Good Stock To Buy Now?

At the end of June, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -46% from the first quarter of 2020. By comparison, 18 hedge funds held shares or bullish call options in APPN a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Colin Moran’s Abdiel Capital Advisors has the number one position in Appian Corporation (NASDAQ:APPN), worth close to $727.5 million, amounting to 21% of its total 13F portfolio. The second largest stake is held by D. E. Shaw of D E Shaw, with a $91.1 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish comprise Ken Griffin’s Citadel Investment Group, Brian Gootzeit and Andrew Frank’s StackLine Partners and Matthew Hulsizer’s PEAK6 Capital Management. In terms of the portfolio weights assigned to each position Abdiel Capital Advisors allocated the biggest weight to Appian Corporation (NASDAQ:APPN), around 20.98% of its 13F portfolio. StackLine Partners is also relatively very bullish on the stock, earmarking 5.64 percent of its 13F equity portfolio to APPN.

Since Appian Corporation (NASDAQ:APPN) has faced falling interest from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of money managers that elected to cut their entire stakes last quarter. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dropped the largest investment of all the hedgies watched by Insider Monkey, worth close to $14 million in stock, and Renaissance Technologies was right behind this move, as the fund dumped about $13.4 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 11 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Appian Corporation (NASDAQ:APPN) but similarly valued. These stocks are Sasol Limited (NYSE:SSL), UGI Corp (NYSE:UGI), Credicorp Ltd. (NYSE:BAP), The Middleby Corporation (NASDAQ:MIDD), First Solar, Inc. (NASDAQ:FSLR), Vertiv Holdings Co (NYSE:VRT), and Reliance Steel & Aluminum Co. (NYSE:RS). This group of stocks’ market valuations match APPN’s market valuation.

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As you can see these stocks had an average of 25.1 hedge funds with bullish positions and the average amount invested in these stocks was $413 million. That figure was $879 million in APPN’s case. Vertiv Holdings Co (NYSE:VRT) is the most popular stock in this table. On the other hand Sasol Limited (NYSE:SSL) is the least popular one with only 5 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 overall hedge fund sentiment score for APPN is 23.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 through November 5th and surpassed the market again by 3.1 percentage points. Unfortunately APPN wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); APPN investors were disappointed as the stock returned -34.1% since the end of June (through 11/5) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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Disclosure: None. This article was originally published at Insider Monkey.

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