Did Hedge Funds Make The Right Call On 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 first 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 4.5 years and analyze what the smart money thinks of Appian Corporation (NASDAQ:APPN) based on that data and determine whether they were really smart about the stock.

Hedge fund interest in Appian Corporation (NASDAQ:APPN) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare APPN to other stocks including Farfetch Limited (NYSE:FTCH), Spirit Realty Capital Inc (NYSE:SRC), and Medallia, Inc. (NYSE:MDLA) to get a better sense of its popularity.

Video: 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 S&P 500 ETFs by 58 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.

Colin Moran Abdiel Capital

Colin Moran of Abdiel Capital Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind let’s review the latest hedge fund action surrounding Appian Corporation (NASDAQ:APPN).

What have hedge funds been doing with Appian Corporation (NASDAQ:APPN)?

At the end of the first quarter, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards APPN over the last 18 quarters. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

The largest stake in Appian Corporation (NASDAQ:APPN) was held by Abdiel Capital Advisors, which reported holding $305.3 million worth of stock at the end of September. It was followed by D E Shaw with a $36.9 million position. Other investors bullish on the company included StackLine Partners, Aubrey Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Abdiel Capital Advisors allocated the biggest weight to Appian Corporation (NASDAQ:APPN), around 14.27% of its 13F portfolio. StackLine Partners is also relatively very bullish on the stock, setting aside 6.68 percent of its 13F equity portfolio to APPN.

Because Appian Corporation (NASDAQ:APPN) has faced bearish sentiment from hedge fund managers, logic holds that there lies a certain “tier” of fund managers that decided to sell off their entire stakes heading into Q4. Interestingly, Israel Englander’s Millennium Management cut the biggest position of the 750 funds tracked by Insider Monkey, comprising about $2.3 million in stock. Josh Goldberg’s fund, G2 Investment Partners Management, also dropped its stock, about $1.5 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Appian Corporation (NASDAQ:APPN) but similarly valued. We will take a look at Farfetch Limited (NYSE:FTCH), Spirit Realty Capital Inc (NYSE:SRC), Medallia, Inc. (NYSE:MDLA), and PVH Corp (NYSE:PVH). All of these stocks’ market caps resemble APPN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FTCH 22 400841 -5
SRC 18 76385 -8
MDLA 20 237596 -2
PVH 18 346896 -11
Average 19.5 265430 -6.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $265 million. That figure was $374 million in APPN’s case. Farfetch Limited (NYSE:FTCH) is the most popular stock in this table. On the other hand Spirit Realty Capital Inc (NYSE:SRC) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Appian Corporation (NASDAQ:APPN) is even less popular than SRC. 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 18.6% in 2020 through July 27th but managed to beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on APPN, though not to the same extent, as the stock returned 26.1% since the end of March and outperformed the market as well.

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