Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Aerpio Pharmaceuticals, Inc. (NASDAQ:ARPO)? The smart money sentiment can provide an answer to this question.
Is Aerpio Pharmaceuticals, Inc. (NASDAQ:ARPO) a buy, sell, or hold? Hedge funds are in a bullish mood. The number of bullish hedge fund bets moved up by 1 in recent months. Our calculations also showed that ARPO isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to 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' 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_341400" align="alignnone" width="600"] Samuel Isaly of OrbiMed Advisors[/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 as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind we're going to take a gander at the new hedge fund action regarding Aerpio Pharmaceuticals, Inc. (NASDAQ:ARPO).
How are hedge funds trading Aerpio Pharmaceuticals, Inc. (NASDAQ:ARPO)?
Heading into the fourth quarter of 2019, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 50% from one quarter earlier. By comparison, 3 hedge funds held shares or bullish call options in ARPO 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.
More specifically, OrbiMed Advisors was the largest shareholder of Aerpio Pharmaceuticals, Inc. (NASDAQ:ARPO), with a stake worth $3.5 million reported as of the end of September. Trailing OrbiMed Advisors was Renaissance Technologies, which amassed a stake valued at $0.1 million. Citadel Investment Group was also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position OrbiMed Advisors allocated the biggest weight to Aerpio Pharmaceuticals, Inc. (NASDAQ:ARPO), around 0.07% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, designating 0.0001 percent of its 13F equity portfolio to ARPO.
With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Citadel Investment Group, managed by Ken Griffin, assembled the most valuable position in Aerpio Pharmaceuticals, Inc. (NASDAQ:ARPO). Citadel Investment Group had $0 million invested in the company at the end of the quarter.
Let's now review hedge fund activity in other stocks similar to Aerpio Pharmaceuticals, Inc. (NASDAQ:ARPO). We will take a look at ContraFect Corp (NASDAQ:CFRX), Zafgen Inc (NASDAQ:ZFGN), Bio-Path Holdings, Inc. (NASDAQ:BPTH), and BioHiTech Global, Inc. (NASDAQ:BHTG). All of these stocks' market caps are closest to ARPO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CFRX,6,3054,-1 ZFGN,12,8736,-2 BPTH,1,444,-1 BHTG,1,103,0 Average,5,3084,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 5 hedge funds with bullish positions and the average amount invested in these stocks was $3 million. That figure was $4 million in ARPO's case. Zafgen Inc (NASDAQ:ZFGN) is the most popular stock in this table. On the other hand Bio-Path Holdings, Inc. (NASDAQ:BPTH) is the least popular one with only 1 bullish hedge fund positions. Aerpio Pharmaceuticals, Inc. (NASDAQ:ARPO) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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. Unfortunately ARPO wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ARPO investors were disappointed as the stock returned -9% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.