Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Apple Hospitality REIT Inc (NYSE:APLE).
Is Apple Hospitality REIT Inc (NYSE:APLE) a buy, sell, or hold? Investors who are in the know are betting on the stock. The number of bullish hedge fund bets increased by 1 recently. Our calculations also showed that APLE isn't among the 30 most popular stocks among hedge funds (view the video below). APLE was in 14 hedge funds' portfolios at the end of June. There were 13 hedge funds in our database with APLE positions at the end of the previous quarter. Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a look at the new hedge fund action encompassing Apple Hospitality REIT Inc (NYSE:APLE).
How are hedge funds trading Apple Hospitality REIT Inc (NYSE:APLE)?
At Q2's end, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from one quarter earlier. On the other hand, there were a total of 12 hedge funds with a bullish position in APLE a year ago. With hedge funds' capital changing hands, there exists a select group of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Renaissance Technologies has the number one position in Apple Hospitality REIT Inc (NYSE:APLE), worth close to $64.7 million, comprising 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is Forward Management, led by J. Alan Reid, Jr., holding a $9.4 million position; 1.7% of its 13F portfolio is allocated to the company. Other peers with similar optimism comprise Israel Englander's Millennium Management, Ken Griffin's Citadel Investment Group and D. E. Shaw's D E Shaw.
As industrywide interest jumped, key money managers have jumped into Apple Hospitality REIT Inc (NYSE:APLE) headfirst. Ellington, managed by Mike Vranos, created the largest position in Apple Hospitality REIT Inc (NYSE:APLE). Ellington had $0.3 million invested in the company at the end of the quarter. Michael Gelband's ExodusPoint Capital also made a $0.2 million investment in the stock during the quarter. The following funds were also among the new APLE investors: Steve Cohen's Point72 Asset Management and Claes Fornell's CSat Investment Advisory.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Apple Hospitality REIT Inc (NYSE:APLE) but similarly valued. These stocks are LivaNova PLC (NASDAQ:LIVN), PBF Energy Inc (NYSE:PBF), Glacier Bancorp, Inc. (NASDAQ:GBCI), and Grocery Outlet Holding Corp. (NASDAQ:GO). This group of stocks' market caps resemble APLE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LIVN,16,183188,-4 PBF,26,358655,4 GBCI,17,63296,5 GO,21,152804,21 Average,20,189486,6.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $189 million. That figure was $89 million in APLE's case. PBF Energy Inc (NYSE:PBF) is the most popular stock in this table. On the other hand LivaNova PLC (NASDAQ:LIVN) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Apple Hospitality REIT Inc (NYSE:APLE) is even less popular than LIVN. Hedge funds clearly dropped the ball on APLE as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on APLE as the stock returned 6.6% during the third quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.