Hedge funds are known to underperform the bull markets but that's not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index ETFs returned approximately 27.5% through the end of November (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds' consensus stock picks rather than directly investing in hedge funds. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Preferred Apartment Communities Inc. (NYSE:APTS).
Preferred Apartment Communities Inc. (NYSE:APTS) was in 6 hedge funds' portfolios at the end of September. APTS has seen a decrease in support from the world's most elite money managers of late. There were 7 hedge funds in our database with APTS positions at the end of the previous quarter. 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 below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
If you'd ask most traders, hedge funds are perceived as worthless, outdated financial vehicles of yesteryear. While there are greater than 8000 funds trading at the moment, Our researchers choose to focus on the aristocrats of this group, about 750 funds. Most estimates calculate that this group of people command the majority of all hedge funds' total asset base, and by tailing their matchless stock picks, Insider Monkey has identified several investment strategies that have historically exceeded Mr. Market. Insider Monkey's flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points annually since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_258236" align="alignnone" width="600"] Ken Griffin of Citadel Investment Group[/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. Now let's review the key hedge fund action encompassing Preferred Apartment Communities Inc. (NYSE:APTS).
What have hedge funds been doing with Preferred Apartment Communities Inc. (NYSE:APTS)?
At Q3's end, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from one quarter earlier. On the other hand, there were a total of 3 hedge funds with a bullish position in APTS a year ago. So, let's review 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, Citadel Investment Group, managed by Ken Griffin, holds the largest position in Preferred Apartment Communities Inc. (NYSE:APTS). Citadel Investment Group has a $4.9 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On Citadel Investment Group's heels is Renaissance Technologies, holding a $2.7 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other peers with similar optimism include John Overdeck and David Siegel's Two Sigma Advisors, Paul Tudor Jones's Tudor Investment Corp and Matthew Tewksbury's Stevens Capital Management. In terms of the portfolio weights assigned to each position Stevens Capital Management allocated the biggest weight to Preferred Apartment Communities Inc. (NYSE:APTS), around 0.02% of its 13F portfolio. Tudor Investment Corp is also relatively very bullish on the stock, earmarking 0.01 percent of its 13F equity portfolio to APTS.
Seeing as Preferred Apartment Communities Inc. (NYSE:APTS) has witnessed falling interest from hedge fund managers, it's easy to see that there was a specific group of hedge funds that elected to cut their entire stakes by the end of the third quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital dropped the largest position of all the hedgies monitored by Insider Monkey, comprising an estimated $0.7 million in stock, and Israel Englander's Millennium Management was right behind this move, as the fund sold off about $0.6 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 1 funds by the end of the third quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Preferred Apartment Communities Inc. (NYSE:APTS) but similarly valued. These stocks are Ribbon Communications Inc. (NASDAQ:RBBN), QuinStreet Inc (NASDAQ:QNST), Solaris Oilfield Infrastructure, Inc. (NYSE:SOI), and Corenergy Infrastructure Trust Inc (NYSE:CORR). This group of stocks' market values resemble APTS's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RBBN,17,46957,6 QNST,19,176526,-2 SOI,9,67101,-5 CORR,9,66642,-1 Average,13.5,89307,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $89 million. That figure was $9 million in APTS's case. QuinStreet Inc (NASDAQ:QNST) is the most popular stock in this table. On the other hand Solaris Oilfield Infrastructure, Inc. (NYSE:SOI) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Preferred Apartment Communities Inc. (NYSE:APTS) is even less popular than SOI. Hedge funds dodged a bullet by taking a bearish stance towards APTS. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately APTS wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); APTS investors were disappointed as the stock returned -4.7% during the fourth quarter (through the end of November) 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 so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.