Did Hedge Funds Make The Right Call On Apellis Pharmaceuticals, Inc. (APLS) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Apellis Pharmaceuticals, Inc. (NASDAQ:APLS) and determine whether hedge funds had an edge regarding this stock.

Apellis Pharmaceuticals, Inc. (NASDAQ:APLS) has seen a decrease in support from the world’s most elite money managers of late. APLS was in 30 hedge funds’ portfolios at the end of the first quarter of 2020. There were 31 hedge funds in our database with APLS positions at the end of the previous quarter. Our calculations also showed that APLS isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Phill Gross of Adage Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. With all of this in mind let’s view the new hedge fund action encompassing Apellis Pharmaceuticals, Inc. (NASDAQ:APLS).

What have hedge funds been doing with Apellis Pharmaceuticals, Inc. (NASDAQ:APLS)?

At Q1’s end, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards APLS over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

Is APLS A Good Stock To Buy?

Among these funds, Hillhouse Capital Management held the most valuable stake in Apellis Pharmaceuticals, Inc. (NASDAQ:APLS), which was worth $134.7 million at the end of the third quarter. On the second spot was Cormorant Asset Management which amassed $60.7 million worth of shares. Farallon Capital, Millennium Management, and Eversept Partners 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 Eversept Partners allocated the biggest weight to Apellis Pharmaceuticals, Inc. (NASDAQ:APLS), around 6.1% of its 13F portfolio. Cormorant Asset Management is also relatively very bullish on the stock, designating 2.82 percent of its 13F equity portfolio to APLS.

Since Apellis Pharmaceuticals, Inc. (NASDAQ:APLS) has experienced falling interest from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of money managers that decided to sell off their entire stakes heading into Q4. Intriguingly, Arsani William’s Logos Capital said goodbye to the largest stake of all the hedgies watched by Insider Monkey, comprising an estimated $18 million in stock, and Albert Cha and Frank Kung’s Vivo Capital was right behind this move, as the fund said goodbye to about $11.7 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks similar to Apellis Pharmaceuticals, Inc. (NASDAQ:APLS). These stocks are Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL), Home Bancshares Inc (NASDAQ:HOMB), National Beverage Corp. (NASDAQ:FIZZ), and Stepan Company (NYSE:SCL). This group of stocks’ market values are similar to APLS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CBRL 23 101131 -1
HOMB 20 15614 8
FIZZ 20 202468 -1
SCL 10 48020 -3
Average 18.25 91808 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $92 million. That figure was $456 million in APLS’s case. Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) is the most popular stock in this table. On the other hand Stepan Company (NYSE:SCL) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Apellis Pharmaceuticals, Inc. (NASDAQ:APLS) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on APLS, though not to the same extent, as the stock returned 21.9% in Q2 and outperformed the market as well.

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Disclosure: None. This article was originally published at Insider Monkey.