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AppFolio Inc (APPF): Hedge Funds Are Cashing Out

A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended September 30, so let’s proceed with the discussion of the hedge fund sentiment on AppFolio Inc (NASDAQ:APPF).

Is AppFolio Inc (NASDAQ:APPF) going to take off soon? Prominent investors are getting less bullish. The number of long hedge fund positions dropped by 1 in recent months. Our calculations also showed that APPF isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
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’ 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 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 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.

NAVELLIER & ASSOCIATES

Louis Navellier of Navellier & Associates

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy  based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to take a look at the recent hedge fund action regarding AppFolio Inc (NASDAQ:APPF).

What have hedge funds been doing with AppFolio Inc (NASDAQ:APPF)?

At Q3’s end, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the previous quarter. On the other hand, there were a total of 19 hedge funds with a bullish position in APPF a year ago. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Ashe Capital, managed by William Crowley, William Harker, and Stephen Blass, holds the biggest position in AppFolio Inc (NASDAQ:APPF). Ashe Capital has a $152.2 million position in the stock, comprising 11.6% of its 13F portfolio. The second most bullish fund manager is Echo Street Capital Management, managed by Greg Poole, which holds a $37.5 million position; 0.6% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that hold long positions comprise Renaissance Technologies, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Louis Navellier’s Navellier & Associates. In terms of the portfolio weights assigned to each position Ashe Capital allocated the biggest weight to AppFolio Inc (NASDAQ:APPF), around 11.63% of its 13F portfolio. Echo Street Capital Management is also relatively very bullish on the stock, designating 0.64 percent of its 13F equity portfolio to APPF.

Because AppFolio Inc (NASDAQ:APPF) has experienced falling interest from the entirety of the hedge funds we track, it’s easy to see that there were a few fund managers who were dropping their entire stakes heading into Q4. It’s worth mentioning that Alexander Captain’s Cat Rock Capital dropped the biggest investment of all the hedgies tracked by Insider Monkey, worth an estimated $5.1 million in stock, and Bruce Kovner’s Caxton Associates was right behind this move, as the fund dumped about $1 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 1 funds heading into Q4.

Let’s now review hedge fund activity in other stocks similar to AppFolio Inc (NASDAQ:APPF). These stocks are Semtech Corporation (NASDAQ:SMTC), Balchem Corporation (NASDAQ:BCPC), FibroGen Inc (NASDAQ:FGEN), and Viavi Solutions Inc (NASDAQ:VIAV). This group of stocks’ market values match APPF’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SMTC 16 218316 -1
BCPC 7 56560 -2
FGEN 24 334669 8
VIAV 30 333312 8
Average 19.25 235714 3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $236 million. That figure was $212 million in APPF’s case. Viavi Solutions Inc (NASDAQ:VIAV) is the most popular stock in this table. On the other hand Balchem Corporation (NASDAQ:BCPC) is the least popular one with only 7 bullish hedge fund positions. AppFolio Inc (NASDAQ:APPF) is not the least popular stock in this group but hedge fund interest is still below 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. A small number of hedge funds were also right about betting on APPF as the stock returned 18.7% during the first two months of Q4 and outperformed the market by an even larger margin.

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

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