Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Apollo Endosurgery, Inc. (NASDAQ:APEN)? The smart money sentiment can provide an answer to this question.
Hedge fund interest in Apollo Endosurgery, Inc. (NASDAQ:APEN) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that APEN 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). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Phunware, Inc. (NASDAQ:PHUN), Home Federal Bancorp Inc of Louisiana (NASDAQ:HFBL), and Express, Inc. (NYSE:EXPR) to gather more data points.
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. Now we’re going to go over the fresh hedge fund action surrounding Apollo Endosurgery, Inc. (NASDAQ:APEN).
How are hedge funds trading Apollo Endosurgery, Inc. (NASDAQ:APEN)?
At Q3’s end, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards APEN over the last 21 quarters. So, let’s review 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, Wilmot B. Harkey and Daniel Mack’s Nantahala Capital Management has the largest position in Apollo Endosurgery, Inc. (NASDAQ:APEN), worth close to $3.2 million, corresponding to 0.1% of its total 13F portfolio. The second largest stake is held by Timothy P. Lynch of Stonepine Capital, with a $2.4 million position; the fund has 2.5% of its 13F portfolio invested in the stock. Remaining peers that hold long positions encompass Lawrence Hawkins’s Prosight Capital, Renaissance Technologies and Philip Hempleman’s Ardsley Partners. In terms of the portfolio weights assigned to each position Stonepine Capital allocated the biggest weight to Apollo Endosurgery, Inc. (NASDAQ:APEN), around 2.51% of its 13F portfolio. Prosight Capital is also relatively very bullish on the stock, earmarking 0.22 percent of its 13F equity portfolio to APEN.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Apollo Endosurgery, Inc. (NASDAQ:APEN) but similarly valued. We will take a look at Phunware, Inc. (NASDAQ:PHUN), Home Federal Bancorp Inc of Louisiana (NASDAQ:HFBL), Express, Inc. (NYSE:EXPR), ARC Document Solutions Inc (NYSE:ARC), Ekso Bionics Holdings, Inc. (NASDAQ:EKSO), ImmuCell Corporation (NASDAQ:ICCC), and Immuron Limited (NASDAQ:IMRN). This group of stocks’ market valuations match APEN’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.3 hedge funds with bullish positions and the average amount invested in these stocks was $3 million. That figure was $6 million in APEN’s case. Express, Inc. (NYSE:EXPR) is the most popular stock in this table. On the other hand Home Federal Bancorp Inc of Louisiana (NASDAQ:HFBL) is the least popular one with only 1 bullish hedge fund positions. Apollo Endosurgery, Inc. (NASDAQ:APEN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for APEN is 46.7. 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 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. Hedge funds were also right about betting on APEN as the stock returned 64.5% since the end of Q3 (through 11/27) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.