Is Apellis Pharmaceuticals, Inc. (APLS) Going to Burn These Hedge Funds?

In this article we are going to use hedge fund sentiment as a tool and determine whether Apellis Pharmaceuticals, Inc. (NASDAQ:APLS) is a good investment right now. We like to analyze hedge fund sentiment before conducting 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.

Apellis Pharmaceuticals, Inc. (NASDAQ:APLS) was in 31 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 35. APLS investors should be aware of a decrease in support from the world’s most elite money managers of late. There were 34 hedge funds in our database with APLS holdings at the end of March. Our calculations also showed that APLS isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we’re going to view the recent hedge fund action encompassing Apellis Pharmaceuticals, Inc. (NASDAQ:APLS).

Do Hedge Funds Think APLS Is A Good Stock To Buy Now?

Heading into the third quarter of 2021, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards APLS over the last 24 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

More specifically, Hillhouse Capital Management was the largest shareholder of Apellis Pharmaceuticals, Inc. (NASDAQ:APLS), with a stake worth $185.2 million reported as of the end of June. Trailing Hillhouse Capital Management was Baker Bros. Advisors, which amassed a stake valued at $143.6 million. Farallon Capital, Octagon Capital Advisors, and Avoro Capital Advisors (venBio Select Advisor) 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 Octagon Capital Advisors allocated the biggest weight to Apellis Pharmaceuticals, Inc. (NASDAQ:APLS), around 16.44% of its 13F portfolio. Acuta Capital Partners is also relatively very bullish on the stock, setting aside 4.05 percent of its 13F equity portfolio to APLS.

Because Apellis Pharmaceuticals, Inc. (NASDAQ:APLS) has experienced falling interest from the entirety of the hedge funds we track, we can see that there were a few fund managers that elected to cut their full holdings by the end of the second quarter. At the top of the heap, Steve Cohen’s Point72 Asset Management said goodbye to the biggest investment of the 750 funds followed by Insider Monkey, totaling about $10.7 million in stock, and Ken Greenberg and David Kim’s Ghost Tree Capital was right behind this move, as the fund said goodbye to about $9.7 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 3 funds by the end of the second quarter.

Let’s check out hedge fund activity in other stocks similar to Apellis Pharmaceuticals, Inc. (NASDAQ:APLS). These stocks are Science Applications International Corp (NYSE:SAIC), Chesapeake Energy Corporation (NASDAQ:CHK), Clean Harbors Inc (NYSE:CLH), Essent Group Ltd (NYSE:ESNT), Companhia de Saneamento Básico do Estado de São Paulo – SABESP (NYSE:SBS), SunPower Corporation (NASDAQ:SPWR), and RBC Bearings Incorporated (NASDAQ:ROLL). This group of stocks’ market caps are similar to APLS’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.3 hedge funds with bullish positions and the average amount invested in these stocks was $484 million. That figure was $877 million in APLS’s case. Chesapeake Energy Corporation (NASDAQ:CHK) is the most popular stock in this table. On the other hand RBC Bearings Incorporated (NASDAQ:ROLL) is the least popular one with only 9 bullish hedge fund positions. Apellis Pharmaceuticals, Inc. (NASDAQ:APLS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for APLS is 60.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15th and beat the market again by 4.5 percentage points. Unfortunately APLS wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on APLS were disappointed as the stock returned -45.2% since the end of June (through 10/15) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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