Is Apple Hospitality REIT Inc (NYSE:APLE) a good bet right now? We like to analyze hedge fund sentiment before doing days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Apple Hospitality REIT Inc (NYSE:APLE) was in 11 hedge funds' portfolios at the end of December. APLE investors should be aware of an increase in hedge fund sentiment in recent months. There were 10 hedge funds in our database with APLE holdings at the end of the previous quarter. Our calculations also showed that aple isn't among the 30 most popular stocks among hedge funds.
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 market by 32 percentage points since May 2014 through March 12, 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.
Let's view the new hedge fund action regarding Apple Hospitality REIT Inc (NYSE:APLE).
How have hedgies been trading Apple Hospitality REIT Inc (NYSE:APLE)?
At the end of the fourth quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the previous quarter. By comparison, 8 hedge funds held shares or bullish call options in APLE a year ago. With hedgies' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Apple Hospitality REIT Inc (NYSE:APLE), with a stake worth $44.2 million reported as of the end of September. Trailing Renaissance Technologies was D E Shaw, which amassed a stake valued at $13.3 million. Millennium Management, Citadel Investment Group, and Forward Management were also very fond of the stock, giving the stock large weights in their portfolios.
Consequently, specific money managers have been driving this bullishness. Weld Capital Management, managed by Minhua Zhang, established the most outsized position in Apple Hospitality REIT Inc (NYSE:APLE). Weld Capital Management had $1.2 million invested in the company at the end of the quarter. Matthew Hulsizer's PEAK6 Capital Management also made a $0.2 million investment in the stock during the quarter.
Let's go over hedge fund activity in other stocks similar to Apple Hospitality REIT Inc (NYSE:APLE). We will take a look at TCF Financial Corporation (NYSE:TCF), RBC Bearings Incorporated (NASDAQ:ROLL), Lumentum Holdings Inc (NASDAQ:LITE), and United States Steel Corporation (NYSE:X). This group of stocks' market values are closest to APLE's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TCF,23,264796,-1 ROLL,6,48158,-1 LITE,31,214753,-2 X,24,374333,-8 Average,21,225510,-3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $226 million. That figure was $91 million in APLE's case. Lumentum Holdings Inc (NASDAQ:LITE) is the most popular stock in this table. On the other hand RBC Bearings Incorporated (NASDAQ:ROLL) is the least popular one with only 6 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately APLE wasn't nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); APLE investors were disappointed as the stock returned 15.1% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.