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Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space.

SAP SE (NYSE:SAP) was in 14 hedge funds' portfolios at the end of the fourth quarter of 2018. SAP has seen an increase in enthusiasm from smart money lately. There were 12 hedge funds in our database with SAP positions at the end of the previous quarter. Our calculations also showed that SAP isn't among the 30 most popular stocks among hedge funds.

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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Let's take a look at the fresh hedge fund action encompassing SAP SE (NYSE:SAP).

How have hedgies been trading SAP SE (NYSE:SAP)?

At Q4's end, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from the second quarter of 2018. On the other hand, there were a total of 9 hedge funds with a bullish position in SAP 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.