We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Aprea Therapeutics, Inc. (NASDAQ:APRE).
Is APRE a good stock to buy now? Aprea Therapeutics, Inc. (NASDAQ:APRE) investors should pay attention to a decrease in enthusiasm from smart money of late. Aprea Therapeutics, Inc. (NASDAQ:APRE) was in 9 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 11. There were 11 hedge funds in our database with APRE holdings at the end of June. Our calculations also showed that APRE isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
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 66 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 website. Keeping this in mind let’s take a look at the key hedge fund action surrounding Aprea Therapeutics, Inc. (NASDAQ:APRE).
Do Hedge Funds Think APRE Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from the previous quarter. By comparison, 0 hedge funds held shares or bullish call options in APRE a year ago. So, let’s check out 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, Redmile Group, managed by Jeremy Green, holds the largest position in Aprea Therapeutics, Inc. (NASDAQ:APRE). Redmile Group has a $54.6 million position in the stock, comprising 1% of its 13F portfolio. Sitting at the No. 2 spot is Consonance Capital Management, led by Mitchell Blutt, holding a $35.1 million position; 4.3% of its 13F portfolio is allocated to the stock. Some other professional money managers that hold long positions contain Jerome Pfund and Michael Sjostrom’s Sectoral Asset Management, Kris Jenner, Gordon Bussard, Graham McPhail’s Rock Springs Capital Management and Steve Cohen’s Point72 Asset Management. In terms of the portfolio weights assigned to each position Consonance Capital Management allocated the biggest weight to Aprea Therapeutics, Inc. (NASDAQ:APRE), around 4.28% of its 13F portfolio. Sectoral Asset Management is also relatively very bullish on the stock, setting aside 1.89 percent of its 13F equity portfolio to APRE.
Due to the fact that Aprea Therapeutics, Inc. (NASDAQ:APRE) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of hedgies that slashed their entire stakes in the third quarter. Interestingly, Doron Breen and Mori Arkin’s Sphera Global Healthcare Fund dumped the largest investment of the “upper crust” of funds watched by Insider Monkey, comprising close to $6.1 million in stock, and Chen Tianqiao’s Shanda Asset Management was right behind this move, as the fund cut about $0.5 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 2 funds in the third quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Aprea Therapeutics, Inc. (NASDAQ:APRE) but similarly valued. These stocks are Berkshire Hills Bancorp, Inc. (NYSE:BHLB), United Fire Group, Inc. (NASDAQ:UFCS), Banc of California, Inc. (NASDAQ:BANC), PBF Logistics LP (NYSE:PBFX), U.S. Lime & Minerals Inc. (NASDAQ:USLM), TORM plc (NASDAQ:TRMD), and Community Health Systems (NYSE:CYH). This group of stocks’ market valuations are similar to APRE’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 9.6 hedge funds with bullish positions and the average amount invested in these stocks was $95 million. That figure was $133 million in APRE’s case. Community Health Systems (NYSE:CYH) is the most popular stock in this table. On the other hand PBF Logistics LP (NYSE:PBFX) is the least popular one with only 3 bullish hedge fund positions. Aprea Therapeutics, Inc. (NASDAQ:APRE) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for APRE is 43.3. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on APRE as the stock returned 27.4% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.