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We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money 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 (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Preferred Apartment Communities Inc. (NYSE:APTS).
Is APTS a good stock to buy now? Hedge fund interest in Preferred Apartment Communities Inc. (NYSE:APTS) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that APTS isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Hess Midstream LP (NYSE:HESM), IBEX Limited (NASDAQ:IBEX), and Hebron Technology Co., Ltd. (NASDAQ:HEBT) to gather more data points.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 S&P 500 ETFs by 66 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.
Donald Sussman of Paloma Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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. Now we're going to go over the key hedge fund action surrounding Preferred Apartment Communities Inc. (NYSE:APTS).
Do Hedge Funds Think APTS Is A Good Stock To Buy Now?
At the end of September, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards APTS over the last 21 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Lawrence Raiman's LDR Capital has the most valuable position in Preferred Apartment Communities Inc. (NYSE:APTS), worth close to $1.9 million, corresponding to 1.9% of its total 13F portfolio. On LDR Capital's heels is Citadel Investment Group, led by Ken Griffin, holding a $1.4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining professional money managers that are bullish include Israel Englander's Millennium Management, Renaissance Technologies and Donald Sussman's Paloma Partners. In terms of the portfolio weights assigned to each position LDR Capital allocated the biggest weight to Preferred Apartment Communities Inc. (NYSE:APTS), around 1.88% of its 13F portfolio. Tudor Investment Corp is also relatively very bullish on the stock, earmarking 0.0046 percent of its 13F equity portfolio to APTS.
Since Preferred Apartment Communities Inc. (NYSE:APTS) has witnessed declining sentiment from the entirety of the hedge funds we track, it's easy to see that there is a sect of fund managers that decided to sell off their positions entirely in the third quarter. At the top of the heap, Mark Coe's Intrinsic Edge Capital cut the largest investment of all the hedgies watched by Insider Monkey, totaling about $0.8 million in stock. John Overdeck and David Siegel's fund, Two Sigma Advisors, also sold off its stock, about $0.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks similar to Preferred Apartment Communities Inc. (NYSE:APTS). We will take a look at Hess Midstream LP (NYSE:HESM), IBEX Limited (NASDAQ:IBEX), Hebron Technology Co., Ltd. (NASDAQ:HEBT), Tidewater Inc. (NYSE:TDW), Pluristem Therapeutics Inc. (NASDAQ:PSTI), Leju Holdings Ltd (NYSE:LEJU), and Cresud Sociedad Anonima Comercial, Inmobiliaria, Financiera y Agropecuaria (NASDAQ:CRESY). This group of stocks' market values match APTS's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HESM,5,7511,-1 IBEX,5,19776,5 HEBT,1,3198,0 TDW,7,42431,0 PSTI,6,2208,2 LEJU,2,2788,-1 CRESY,4,6834,-3 Average,4.3,12107,0.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.3 hedge funds with bullish positions and the average amount invested in these stocks was $12 million. That figure was $6 million in APTS's case. Tidewater Inc. (NYSE:TDW) is the most popular stock in this table. On the other hand Hebron Technology Co., Ltd. (NASDAQ:HEBT) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Preferred Apartment Communities Inc. (NYSE:APTS) is more popular among hedge funds. Our overall hedge fund sentiment score for APTS is 85. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 32.9% in 2020 through December 8th but still managed to beat the market by 16.2 percentage points. Hedge funds were also right about betting on APTS as the stock returned 53% since the end of September (through 12/8) 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.