Do Hedge Funds Really Like American Software, Inc. (AMSWA)?

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 American Software, Inc. (NASDAQ:AMSWA) and determine whether hedge funds skillfully traded this stock.

American Software, Inc. (NASDAQ:AMSWA) investors should be aware of an increase in activity from the world’s largest hedge funds lately. Our calculations also showed that AMSWA 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.

At the moment there are a large number of indicators shareholders have at their disposal to assess their stock investments. A duo of the most underrated indicators are hedge fund and insider trading sentiment. Our researchers have shown that, historically, those who follow the best picks of the best money managers can outperform their index-focused peers by a healthy amount (see the details here).

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. 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 let’s take a look at the latest hedge fund action regarding American Software, Inc. (NASDAQ:AMSWA).

How are hedge funds trading American Software, Inc. (NASDAQ:AMSWA)?

Heading into the second quarter of 2020, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards AMSWA over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in American Software, Inc. (NASDAQ:AMSWA), which was worth $28.7 million at the end of the third quarter. On the second spot was Cloverdale Capital Management which amassed $9.4 million worth of shares. Arrowstreet Capital, Royce & Associates, and Two Sigma Advisors 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 Cloverdale Capital Management allocated the biggest weight to American Software, Inc. (NASDAQ:AMSWA), around 7.36% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, dishing out 0.81 percent of its 13F equity portfolio to AMSWA.

With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Manatuck Hill Partners, managed by Mark Broach, established the biggest position in American Software, Inc. (NASDAQ:AMSWA). Manatuck Hill Partners had $0.6 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also initiated a $0.4 million position during the quarter. The only other fund with a new position in the stock is Greg Eisner’s Engineers Gate Manager.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as American Software, Inc. (NASDAQ:AMSWA) but similarly valued. These stocks are Smith & Wesson Brands, Inc. (NASDAQ:AOBC), First Foundation Inc (NASDAQ:FFWM), MGP Ingredients Inc (NASDAQ:MGPI), and The Shyft Group, Inc. (NASDAQ:SPAR). All of these stocks’ market caps match AMSWA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AOBC 22 55666 11
FFWM 12 20576 -1
MGPI 11 10980 -4
SPAR 17 57823 -1
Average 15.5 36261 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $36 million. That figure was $46 million in AMSWA’s case. Smith & Wesson Brands, Inc. (NASDAQ:AOBC) is the most popular stock in this table. On the other hand MGP Ingredients Inc (NASDAQ:MGPI) is the least popular one with only 11 bullish hedge fund positions. American Software, Inc. (NASDAQ:AMSWA) is not the least popular stock in this group but hedge fund interest is still below average. 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 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately AMSWA wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); AMSWA investors were disappointed as the stock returned 11.7% during the second quarter 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.

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