Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Hedge fund interest in Aptevo Therapeutics Inc. (NASDAQ:APVO) 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 APVO to other stocks including Future FinTech Group Inc. (NASDAQ:FTFT), ReTo Eco-Solutions, Inc. (NASDAQ:RETO), and Golden Minerals Co (NYSE:AUMN) to get a better sense of its popularity. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_25717" align="alignnone" width="548"] Steven Cohen of Point72 Asset Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. Let's take a glance at the recent hedge fund action regarding Aptevo Therapeutics Inc. (NASDAQ:APVO).
What does smart money think about Aptevo Therapeutics Inc. (NASDAQ:APVO)?
At the end of the third quarter, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter of 2019. By comparison, 8 hedge funds held shares or bullish call options in APVO a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Point72 Asset Management, managed by Steve Cohen, holds the number one position in Aptevo Therapeutics Inc. (NASDAQ:APVO). Point72 Asset Management has a $1.4 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by Renaissance Technologies, which holds a $1.3 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other professional money managers with similar optimism consist of Peter S. Park's Park West Asset Management, and John Petry's Sessa Capital. In terms of the portfolio weights assigned to each position Park West Asset Management allocated the biggest weight to Aptevo Therapeutics Inc. (NASDAQ:APVO), around 0.03% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, designating 0.02 percent of its 13F equity portfolio to APVO.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Alyeska Investment Group. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Winton Capital Management).
Let's now review hedge fund activity in other stocks similar to Aptevo Therapeutics Inc. (NASDAQ:APVO). These stocks are Future FinTech Group Inc. (NASDAQ:FTFT), ReTo Eco-Solutions, Inc. (NASDAQ:RETO), Golden Minerals Co (NYSE:AUMN), and Optical Cable Corporation (NASDAQ:OCC). This group of stocks' market values resemble APVO's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FTFT,1,21,0 RETO,1,23,-1 AUMN,1,35,-1 OCC,1,455,0 Average,1,134,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 1 hedge funds with bullish positions and the average amount invested in these stocks was $0 million. That figure was $4 million in APVO's case. Future FinTech Group Inc. (NASDAQ:FTFT) is the most popular stock in this table. On the other hand Future FinTech Group Inc. (NASDAQ:FTFT) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Aptevo Therapeutics Inc. (NASDAQ:APVO) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on APVO as the stock returned 10.5% during the first two months of Q4 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.
Disclosure: None. This article was originally published at Insider Monkey.