Did Hedge Funds Make The Right Call On Apollo Global Management Inc (APO) ?

The latest 13F reporting period has come and gone, and 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. Now, 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 you are going to find out whether hedge funds thoughtApollo Global Management Inc (NYSE:APO) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Apollo Global Management Inc (NYSE:APO) the right pick for your portfolio? Prominent investors were getting more bullish. The number of long hedge fund bets moved up by 5 in recent months. Our calculations also showed that APO 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 58 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.

Chase Coleman of Tiger Global

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. Keeping this in mind let’s go over the key hedge fund action encompassing Apollo Global Management Inc (NYSE:APO).

How are hedge funds trading Apollo Global Management Inc (NYSE:APO)?

Heading into the second quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards APO over the last 18 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

More specifically, Tiger Global Management LLC was the largest shareholder of Apollo Global Management Inc (NYSE:APO), with a stake worth $1136.1 million reported as of the end of September. Trailing Tiger Global Management LLC was Lakewood Capital Management, which amassed a stake valued at $43.3 million. Millennium Management, Select Equity Group, and Markel Gayner Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Dorset Management allocated the biggest weight to Apollo Global Management Inc (NYSE:APO), around 7.88% of its 13F portfolio. Tiger Global Management LLC is also relatively very bullish on the stock, designating 6.84 percent of its 13F equity portfolio to APO.

With a general bullishness amongst the heavyweights, specific money managers have jumped into Apollo Global Management Inc (NYSE:APO) headfirst. Lakewood Capital Management, managed by Anthony Bozza, initiated the most valuable position in Apollo Global Management Inc (NYSE:APO). Lakewood Capital Management had $43.3 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $36 million position during the quarter. The other funds with new positions in the stock are Richard Merage’s MIG Capital, David Brown’s Hawk Ridge Management, and Parsa Kiai’s Steamboat Capital Partners.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Apollo Global Management Inc (NYSE:APO) but similarly valued. We will take a look at Globe Life Inc. (NYSE:GL), RPM International Inc. (NYSE:RPM), Host Hotels and Resorts Inc (NYSE:HST), and Mylan Inc. (NASDAQ:MYL). This group of stocks’ market caps are similar to APO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GL 22 574230 -1
RPM 22 191448 -9
HST 24 130445 -3
MYL 49 1469905 2
Average 29.25 591507 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $592 million. That figure was $1487 million in APO’s case. Mylan Inc. (NASDAQ:MYL) is the most popular stock in this table. On the other hand Globe Life Inc. (NYSE:GL) is the least popular one with only 22 bullish hedge fund positions. Apollo Global Management Inc (NYSE:APO) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds 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 still beat the market by 15.5 percentage points. Hedge funds were also right about betting on APO as the stock returned 50.5% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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