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Did Hedge Funds Drop The Ball On Ares Management Corporation (ARES)?

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Ares Management Corporation (NYSE:ARES) to find out whether it was one of their high conviction long-term ideas.

Ares Management Corporation (NYSE:ARES) was in 11 hedge funds’ portfolios at the end of December. ARES has seen a decrease in activity from the world’s largest hedge funds lately. There were 15 hedge funds in our database with ARES positions at the end of the previous quarter. Our calculations also showed that ares isn’t among the 30 most popular stocks among hedge funds.

According to most investors, hedge funds are viewed as unimportant, old financial tools of the past. While there are more than 8000 funds trading today, Our researchers choose to focus on the masters of this club, about 750 funds. These investment experts preside over bulk of all hedge funds’ total asset base, and by paying attention to their first-class picks, Insider Monkey has spotted several investment strategies that have historically defeated the broader indices. Insider Monkey’s flagship hedge fund strategy beat the S&P 500 index by nearly 5 percentage points a year since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 27.5% since February 2017 (through March 12th) even though the market was up nearly 25% during the same period. We just shared a list of 6 short targets in our latest quarterly update and they are already down an average of 6% in less than a month.

SAC CAPITAL ADVISORS

Let’s take a gander at the latest hedge fund action regarding Ares Management Corporation (NYSE:ARES).

How have hedgies been trading Ares Management Corporation (NYSE:ARES)?

At Q4’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. Below, you can check out the change in hedge fund sentiment towards ARES over the last 14 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with ARES Positions

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Royce & Associates, managed by Chuck Royce, holds the largest position in Ares Management Corporation (NYSE:ARES). Royce & Associates has a $91.9 million position in the stock, comprising 0.8% of its 13F portfolio. Coming in second is Ken Griffin of Citadel Investment Group, with a $32.9 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that hold long positions contain Israel Englander’s Millennium Management, Steve Cohen’s Point72 Asset Management and Anton Schutz’s Mendon Capital Advisors.

Since Ares Management Corporation (NYSE:ARES) has witnessed falling interest from the aggregate hedge fund industry, it’s safe to say that there lies a certain “tier” of money managers who sold off their entire stakes in the third quarter. It’s worth mentioning that Benjamin A. Smith’s Laurion Capital Management dropped the largest investment of the “upper crust” of funds monitored by Insider Monkey, comprising close to $24.9 million in stock. Jim Simons’s fund, Renaissance Technologies, also dropped its stock, about $7.6 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 4 funds in the third quarter.

Let’s check out hedge fund activity in other stocks similar to Ares Management Corporation (NYSE:ARES). These stocks are Capitol Federal Financial, Inc. (NASDAQ:CFFN), ExlService Holdings, Inc. (NASDAQ:EXLS), Great Western Bancorp Inc (NYSE:GWB), and PriceSmart, Inc. (NASDAQ:PSMT). All of these stocks’ market caps resemble ARES’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CFFN 9 160967 -3
EXLS 11 36147 1
GWB 11 19420 3
PSMT 8 31971 -1
Average 9.75 62126 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $62 million. That figure was $206 million in ARES’s case. ExlService Holdings, Inc. (NASDAQ:EXLS) is the most popular stock in this table. On the other hand PriceSmart, Inc. (NASDAQ:PSMT) is the least popular one with only 8 bullish hedge fund positions. Ares Management L.P. (NYSE:ARES) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on ARES as the stock returned 37.5% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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

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