Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 5.2% in the 12 months ending October 30, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, hedge funds’ 30 preferred S&P 500 stocks (as of September 2014) generated a return of 9.5% during the same 12-month period, with 63% of these stock picks outperformed the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 16-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Preferred Apartment Communities Inc. (NYSE:APTS).
Preferred Apartment Communities Inc. (NYSE:APTS) shareholders have witnessed a decrease in enthusiasm from smart money in recent months. It may come as a surprise to the investors tracking Preferred Apartment Communities Inc. (NYSE:APTS), as the shares of the company were up 9.35% during the quarter. These movements did trigger our curiosity, and we decided to cover hedge funds that held stakes in the company, at the end of the third quarter.
The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Baozun Inc (ADR) (NASDAQ:BZUN), Zix Corporation (NASDAQ:ZIXI), and Anthera Pharmaceuticals Inc (NASDAQ:ANTH) to gather more data points.
Follow Preferred Apartment Communities Inc (NYSE:APTS)
Follow Preferred Apartment Communities Inc (NYSE:APTS)
At the moment, there are a lot of metrics stock market investors put to use to size up stocks. Two of the most useful metrics are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the elite investment managers can beat their index-focused peers by a superb amount (see the details here).
Now, we’re going to take a look at the new action surrounding Preferred Apartment Communities Inc. (NYSE:APTS).
How are hedge funds trading Preferred Apartment Communities Inc. (NYSE:APTS)?
At the end of Q3, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a decline of 29% from one quarter earlier. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Andy Redleaf’s Whitebox Advisors has the number one position in Preferred Apartment Communities Inc. (NYSE:APTS), worth close to $2.4 million, comprising 0.1% of its total 13F portfolio. The second most bullish fund manager is BHR Capital, led by Michael Thompson, holding a $1.6 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism comprise Israel Englander’s Millennium Management, Ken Griffin’s Citadel Investment Group, and Chao Ku’s Nine Chapters Capital Management.
Due to the fact that Preferred Apartment Communities Inc. (NYSE:APTS) has faced a declining sentiment from hedge fund managers, logic holds that there exists a select few fund managers who were dropping their positions entirely in the third quarter. At the top of the heap, Renaissance Technologies cut the largest investment of all the hedgies followed by Insider Monkey, valued at about $1 million in stock. D E Shaw also sold off its stock, about $0.3 million worth of shares. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds in the third quarter.
Let’s now take a look at 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 Baozun Inc (ADR) (NASDAQ:BZUN), Zix Corporation (NASDAQ:ZIXI), Anthera Pharmaceuticals Inc (NASDAQ:ANTH), and World Acceptance Corp. (NASDAQ:WRLD). All of these stocks’ market caps are closest to Preferred Apartment Communities Inc. (NYSE:APTS)’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BZUN | 5 | 6055 | -2 |
| ZIXI | 16 | 24485 | -1 |
| ANTH | 14 | 33309 | 3 |
| WRLD | 17 | 47604 | -1 |
As you can see, these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $28 million. That figure was $5 million in Preferred Apartment Communities Inc. (NYSE:APTS)’s case. World Acceptance Corp. (NASDAQ:WRLD) is the most popular stock in this table. On the other hand, Baozun Inc (ADR) (NASDAQ:BZUN) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks, Preferred Apartment Communities Inc. (NYSE:APTS) is even less popular than Baozun Inc (ADR) (NASDAQ:BZUN). Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case, more research is warranted.