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We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the fourth quarter, which unveil their equity positions as of December 31. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Apple Hospitality REIT Inc (NYSE:APLE).
Hedge fund interest in Apple Hospitality REIT Inc (NYSE:APLE) 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 APLE to other stocks including Terreno Realty Corporation (NYSE:TRNO), Tegna Inc (NYSE:TGNA), and The Goodyear Tire & Rubber Company (NASDAQ:GT) to get a better sense of its popularity.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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Dmitry Balyasny of Balyasny Asset Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind let's take a peek at the latest hedge fund action surrounding Apple Hospitality REIT Inc (NYSE:APLE).
What does smart money think about Apple Hospitality REIT Inc (NYSE:APLE)?
At the end of the fourth quarter, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the third quarter of 2019. On the other hand, there were a total of 11 hedge funds with a bullish position in APLE 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, Renaissance Technologies was the largest shareholder of Apple Hospitality REIT Inc (NYSE:APLE), with a stake worth $92.6 million reported as of the end of September. Trailing Renaissance Technologies was Balyasny Asset Management, which amassed a stake valued at $14.8 million. Forward Management, Winton Capital Management, and Citadel Investment Group were 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 Forward Management allocated the biggest weight to Apple Hospitality REIT Inc (NYSE:APLE), around 1.46% of its 13F portfolio. Quantamental Technologies is also relatively very bullish on the stock, setting aside 0.14 percent of its 13F equity portfolio to APLE.
Judging by the fact that Apple Hospitality REIT Inc (NYSE:APLE) has witnessed a decline in interest from hedge fund managers, logic holds that there were a few funds that decided to sell off their positions entirely heading into Q4. At the top of the heap, Richard Driehaus's Driehaus Capital sold off the biggest position of the 750 funds followed by Insider Monkey, worth about $1.4 million in stock, and Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors was right behind this move, as the fund cut about $1 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
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 Terreno Realty Corporation (NYSE:TRNO), Tegna Inc (NYSE:TGNA), The Goodyear Tire & Rubber Company (NASDAQ:GT), and Steven Madden, Ltd. (NASDAQ:SHOO). This group of stocks' market caps are closest to APLE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TRNO,14,32370,3 TGNA,19,400244,1 GT,32,573619,5 SHOO,22,84910,2 Average,21.75,272786,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $273 million. That figure was $135 million in APLE's case. The Goodyear Tire & Rubber Company (NASDAQ:GT) is the most popular stock in this table. On the other hand Terreno Realty Corporation (NYSE:TRNO) is the least popular one with only 14 bullish hedge fund positions. Apple Hospitality REIT Inc (NYSE:APLE) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately APLE wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); APLE investors were disappointed as the stock returned -41.8% during the same time period 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 most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.