Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the fourth quarter, many investors lost money due to unpredictable events such as the sudden increase in long-term interest rates and unintended consequences of the trade war with China. Nevertheless, many of the stocks that tanked in the fourth quarter still sport strong fundamentals and their decline was more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to American Public Education, Inc. (NASDAQ:APEI) changed recently.
American Public Education, Inc. (NASDAQ:APEI) investors should be aware of an increase in support from the world’s most elite money managers recently. Our calculations also showed that APEI isn’t among the 30 most popular stocks among hedge funds.
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 market by 32 percentage points since May 2014 through March 12, 2019 (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.
Let’s take a peek at the recent hedge fund action surrounding American Public Education, Inc. (NASDAQ:APEI).
How are hedge funds trading American Public Education, Inc. (NASDAQ:APEI)?
At the end of the fourth quarter, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 23% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in APEI over the last 14 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Renaissance Technologies, managed by Jim Simons, holds the most valuable position in American Public Education, Inc. (NASDAQ:APEI). Renaissance Technologies has a $37.2 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by Cliff Asness of AQR Capital Management, with a $16.5 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that are bullish comprise Noam Gottesman’s GLG Partners, D. E. Shaw’s D E Shaw and Israel Englander’s Millennium Management.
As one would reasonably expect, specific money managers were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the most outsized position in American Public Education, Inc. (NASDAQ:APEI). Arrowstreet Capital had $0.6 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also made a $0.2 million investment in the stock during the quarter. The only other fund with a new position in the stock is Matthew Hulsizer’s PEAK6 Capital Management.
Let’s now take a look at hedge fund activity in other stocks similar to American Public Education, Inc. (NASDAQ:APEI). These stocks are Ethan Allen Interiors Inc. (NYSE:ETH), Luxfer Holdings PLC (NYSE:LXFR), Insteel Industries Inc (NASDAQ:IIIN), and MYR Group Inc (NASDAQ:MYRG). This group of stocks’ market values resemble APEI’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $53 million. That figure was $77 million in APEI’s case. Ethan Allen Interiors Inc. (NYSE:ETH) is the most popular stock in this table. On the other hand Luxfer Holdings PLC (NYSE:LXFR) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks American Public Education, Inc. (NASDAQ:APEI) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately APEI wasn’t nearly as popular as these 15 stock and hedge funds that were betting on APEI were disappointed as the stock returned 16% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.