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Were Hedge Funds Right About Ditching Apple Hospitality REIT Inc (APLE)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Apple Hospitality REIT Inc (NYSE:APLE) and determine whether the smart money was really smart about this stock.

Apple Hospitality REIT Inc (NYSE:APLE) shareholders have witnessed a decrease in activity from the world’s largest hedge funds lately. Our calculations also showed that APLE 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.

According to most stock holders, hedge funds are perceived as worthless, old investment tools of yesteryear. While there are more than 8000 funds trading today, We choose to focus on the bigwigs of this club, around 850 funds. These investment experts have their hands on most of the hedge fund industry’s total capital, and by paying attention to their finest picks, Insider Monkey has spotted numerous investment strategies that have historically exceeded the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Ricky Sandler of Eminence Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s review the key hedge fund action surrounding Apple Hospitality REIT Inc (NYSE:APLE).

How are hedge funds trading Apple Hospitality REIT Inc (NYSE:APLE)?

At Q1’s end, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -27% from one quarter earlier. On the other hand, there were a total of 13 hedge funds with a bullish position in APLE a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is APLE A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, holds the number one position in Apple Hospitality REIT Inc (NYSE:APLE). Renaissance Technologies has a $40.3 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by Ricky Sandler of Eminence Capital, with a $26.1 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism encompass David Harding’s Winton Capital Management, Ken Griffin’s Citadel Investment Group and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Eminence Capital allocated the biggest weight to Apple Hospitality REIT Inc (NYSE:APLE), around 0.29% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, designating 0.17 percent of its 13F equity portfolio to APLE.

Judging by the fact that Apple Hospitality REIT Inc (NYSE:APLE) has witnessed bearish sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of hedge funds that decided to sell off their full holdings in the first quarter. Intriguingly, Dmitry Balyasny’s Balyasny Asset Management cut the biggest investment of the “upper crust” of funds tracked by Insider Monkey, valued at an estimated $14.8 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund dumped about $2 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 4 funds in the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Apple Hospitality REIT Inc (NYSE:APLE) but similarly valued. We will take a look at Proto Labs Inc (NYSE:PRLB), Advanced Drainage Systems Inc. (NYSE:WMS), Washington Federal Inc. (NASDAQ:WAFD), and Fabrinet (NYSE:FN). This group of stocks’ market valuations are similar to APLE’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PRLB 13 21459 3
WMS 25 368899 0
WAFD 18 42649 -1
FN 22 132983 -3
Average 19.5 141498 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $141 million. That figure was $75 million in APLE’s case. Advanced Drainage Systems Inc. (NYSE:WMS) is the most popular stock in this table. On the other hand Proto Labs Inc (NYSE:PRLB) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Apple Hospitality REIT Inc (NYSE:APLE) is even less popular than PRLB. Hedge funds dodged a bullet by taking a bearish stance towards APLE. Our calculations showed that the top 10 most popular hedge fund stocks 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 managed to beat the market by 15.5 percentage points. Unfortunately APLE wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); APLE investors were disappointed as the stock returned 5.3% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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