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

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of 4 percentage points during the first 9 months of 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Apellis Pharmaceuticals, Inc. (NASDAQ:APLS).

Apellis Pharmaceuticals, Inc. (NASDAQ:APLS) was in 17 hedge funds’ portfolios at the end of June. APLS has experienced a decrease in hedge fund sentiment lately. There were 19 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 (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

According to most stock holders, hedge funds are perceived as underperforming, old financial vehicles of yesteryear. While there are greater than 8000 funds with their doors open at present, Our experts look at the leaders of this group, about 750 funds. These hedge fund managers administer bulk of the hedge fund industry’s total asset base, and by tailing their unrivaled investments, Insider Monkey has found numerous investment strategies that have historically outstripped the market. Insider Monkey’s flagship hedge fund strategy outrun the S&P 500 index by around 5 percentage points annually since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .

APLS_oct2019

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to go over the fresh hedge fund action surrounding Apellis Pharmaceuticals, Inc. (NASDAQ:APLS).

How have hedgies been trading Apellis Pharmaceuticals, Inc. (NASDAQ:APLS)?

At Q2’s end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in APLS over the last 16 quarters. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

Lei Zhang Hillhouse Capital

Among these funds, Cormorant Asset Management held the most valuable stake in Apellis Pharmaceuticals, Inc. (NASDAQ:APLS), which was worth $75.2 million at the end of the second quarter. On the second spot was Hillhouse Capital Management which amassed $53.2 million worth of shares. Moreover, Millennium Management, OrbiMed Advisors, and Sectoral Asset Management were also bullish on Apellis Pharmaceuticals, Inc. (NASDAQ:APLS), allocating a large percentage of their portfolios to this stock.

Since Apellis Pharmaceuticals, Inc. (NASDAQ:APLS) has witnessed a decline in interest from the smart money, it’s safe to say that there exists a select few hedgies who were dropping their entire stakes by the end of the second quarter. Intriguingly, James A. Silverman’s Opaleye Management sold off the biggest position of the 750 funds monitored by Insider Monkey, worth close to $2.2 million in stock, and Louis Bacon’s Moore Global Investments was right behind this move, as the fund sold off about $1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 2 funds by the end of the second quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Apellis Pharmaceuticals, Inc. (NASDAQ:APLS) but similarly valued. We will take a look at First Majestic Silver Corp (NYSE:AG), Provident Financial Services, Inc. (NYSE:PFS), U.S. Physical Therapy, Inc. (NYSE:USPH), and Electronics For Imaging, Inc. (NASDAQ:EFII). This group of stocks’ market valuations resemble APLS’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AG 9 22805 1
PFS 11 56686 5
USPH 11 68548 -2
EFII 15 152934 0
Average 11.5 75243 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.5 hedge funds with bullish positions and the average amount invested in these stocks was $75 million. That figure was $341 million in APLS’s case. Electronics For Imaging, Inc. (NASDAQ:EFII) is the most popular stock in this table. On the other hand First Majestic Silver Corp (NYSE:AG) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Apellis Pharmaceuticals, Inc. (NASDAQ:APLS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately APLS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on APLS were disappointed as the stock returned -4.9% during the third quarter 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 many of these stocks already outperformed the market in Q3.

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

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