Was The Smart Money Right About Crowding Into Anaplan, Inc. (PLAN)?

Abigail Fisher
·6 min read

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Anaplan, Inc. (NYSE:PLAN).

Anaplan, Inc. (NYSE:PLAN) was in 49 hedge funds' portfolios at the end of June. The all time high for this statistics is 57. PLAN has experienced a decrease in enthusiasm from smart money lately. There were 51 hedge funds in our database with PLAN positions at the end of the first quarter. Our calculations also showed that PLAN isn't among the 30 most popular stocks among hedge funds (click for Q2 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 56 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Chase Coleman of Tiger Global

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 best high dividend stocks to buy to identify solid dividend stocks trading at rock bottom prices. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we're going to analyze the latest hedge fund action encompassing Anaplan, Inc. (NYSE:PLAN).

How have hedgies been trading Anaplan, Inc. (NYSE:PLAN)?

At second quarter's end, a total of 49 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from one quarter earlier. By comparison, 37 hedge funds held shares or bullish call options in PLAN a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Anaplan, Inc. (NYSE:PLAN) was held by Coatue Management, which reported holding $391.1 million worth of stock at the end of September. It was followed by Tiger Global Management LLC with a $308.1 million position. Other investors bullish on the company included Viking Global, D1 Capital Partners, and Steadfast Capital Management. In terms of the portfolio weights assigned to each position Cowbird Capital allocated the biggest weight to Anaplan, Inc. (NYSE:PLAN), around 12.4% of its 13F portfolio. Clearfield Capital is also relatively very bullish on the stock, setting aside 8.27 percent of its 13F equity portfolio to PLAN.

Since Anaplan, Inc. (NYSE:PLAN) has witnessed declining sentiment from the smart money, it's safe to say that there were a few hedgies that elected to cut their entire stakes last quarter. At the top of the heap, Lone Pine Capital dumped the largest stake of the "upper crust" of funds followed by Insider Monkey, comprising an estimated $66.6 million in stock, and Alex Sacerdote's Whale Rock Capital Management was right behind this move, as the fund dumped about $40.3 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 2 funds last quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Anaplan, Inc. (NYSE:PLAN) but similarly valued. We will take a look at MKS Instruments, Inc. (NASDAQ:MKSI), PRA Health Sciences Inc (NASDAQ:PRAH), Herbalife Nutrition Ltd. (NYSE:HLF), LPL Financial Holdings Inc (NASDAQ:LPLA), BanColombia S.A. (NYSE:CIB), Assurant, Inc. (NYSE:AIZ), and Encompass Health Corporation (NYSE:EHC). This group of stocks' market caps are closest to PLAN's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MKSI,32,329943,5 PRAH,33,169611,4 HLF,36,3052037,5 LPLA,43,892669,10 CIB,9,69617,-2 AIZ,31,822763,-2 EHC,33,498955,0 Average,31,833656,2.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 31 hedge funds with bullish positions and the average amount invested in these stocks was $834 million. That figure was $2182 million in PLAN's case. LPL Financial Holdings Inc (NASDAQ:LPLA) is the most popular stock in this table. On the other hand BanColombia S.A. (NYSE:CIB) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Anaplan, Inc. (NYSE:PLAN) is more popular among hedge funds. Our overall hedge fund sentiment score for PLAN is 78.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 returned 30% in 2020 through October 23rd but still managed to beat the market by 21 percentage points. Hedge funds were also right about betting on PLAN as the stock returned 33.5% since the end of June (through 10/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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