Were Hedge Funds Right About Selling Apogee Enterprises, Inc. (APOG)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Apogee Enterprises, Inc. (NASDAQ:APOG) and determine whether hedge funds skillfully traded this stock.

Is Apogee Enterprises, Inc. (NASDAQ:APOG) ready to rally soon? Hedge funds were taking a bearish view. The number of long hedge fund bets dropped by 3 lately. Our calculations also showed that APOG isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 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.

Donald Sussman of Paloma Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the top 20 agriculture producing countries to identify emerging companies that are likely to deliver 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a gander at the new hedge fund action regarding Apogee Enterprises, Inc. (NASDAQ:APOG).

How are hedge funds trading Apogee Enterprises, Inc. (NASDAQ:APOG)?

At the end of the first quarter, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from the fourth quarter of 2019. On the other hand, there were a total of 11 hedge funds with a bullish position in APOG a year ago. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

More specifically, Engaged Capital was the largest shareholder of Apogee Enterprises, Inc. (NASDAQ:APOG), with a stake worth $20.5 million reported as of the end of September. Trailing Engaged Capital was Arrowstreet Capital, which amassed a stake valued at $8.3 million. Millennium Management, Headlands Capital, and Intrinsic Edge Capital 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 Headlands Capital allocated the biggest weight to Apogee Enterprises, Inc. (NASDAQ:APOG), around 6.49% of its 13F portfolio. Engaged Capital is also relatively very bullish on the stock, setting aside 2.69 percent of its 13F equity portfolio to APOG.

Since Apogee Enterprises, Inc. (NASDAQ:APOG) has witnessed declining sentiment from hedge fund managers, we can see that there was a specific group of money managers that decided to sell off their positions entirely last quarter. It’s worth mentioning that David Brown’s Hawk Ridge Management sold off the largest stake of the 750 funds watched by Insider Monkey, valued at an estimated $2.2 million in stock, and Bruce Kovner’s Caxton Associates LP was right behind this move, as the fund said goodbye to about $0.3 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 3 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to Apogee Enterprises, Inc. (NASDAQ:APOG). We will take a look at Aegion Corp (NASDAQ:AEGN), Frequency Therapeutics, Inc. (NASDAQ:FREQ), eXp World Holdings, Inc. (NASDAQ:EXPI), and 111, Inc. (NASDAQ:YI). This group of stocks’ market caps are closest to APOG’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $34 million. That figure was $54 million in APOG’s case. Frequency Therapeutics, Inc. (NASDAQ:FREQ) is the most popular stock in this table. On the other hand 111, Inc. (NASDAQ:YI) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Apogee Enterprises, Inc. (NASDAQ:APOG) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. Unfortunately APOG wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on APOG were disappointed as the stock returned 9% during the second quarter (through June 25th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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