At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Ares Management Corp (NYSE:ARES) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Is Ares Management Corp (NYSE:ARES) the right investment to pursue these days? Prominent investors were buying. The number of bullish hedge fund bets went up by 4 lately. Ares Management Corp (NYSE:ARES) was in 20 hedge funds’ portfolios at the end of June. The all time high for this statistics is 18. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ARES isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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 are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Now we’re going to go over the latest hedge fund action regarding Ares Management Corp (NYSE:ARES).
How are hedge funds trading Ares Management Corp (NYSE:ARES)?
At second quarter’s end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ARES over the last 20 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
Among these funds, HMI Capital held the most valuable stake in Ares Management Corp (NYSE:ARES), which was worth $185.5 million at the end of the third quarter. On the second spot was Royce & Associates which amassed $99.1 million worth of shares. Samlyn Capital, Junto Capital Management, and Millennium 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 HMI Capital allocated the biggest weight to Ares Management Corp (NYSE:ARES), around 8.85% of its 13F portfolio. Becker Drapkin Management is also relatively very bullish on the stock, dishing out 3.65 percent of its 13F equity portfolio to ARES.
As aggregate interest increased, specific money managers have been driving this bullishness. Samlyn Capital, managed by Robert Pohly, created the largest position in Ares Management Corp (NYSE:ARES). Samlyn Capital had $40.9 million invested in the company at the end of the quarter. James Parsons’s Junto Capital Management also initiated a $40.9 million position during the quarter. The other funds with new positions in the stock are Greg Poole’s Echo Street Capital Management, Donald Sussman’s Paloma Partners, and Richard Driehaus’s Driehaus Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Ares Management Corp (NYSE:ARES) but similarly valued. We will take a look at Churchill Downs Incorporated (NASDAQ:CHDN), Sonoco Products Company (NYSE:SON), First Solar, Inc. (NASDAQ:FSLR), Reata Pharmaceuticals, Inc. (NASDAQ:RETA), Planet Fitness Inc (NYSE:PLNT), CubeSmart (NYSE:CUBE), and Enel Chile S.A. (NYSE:ENIC). This group of stocks’ market values match ARES’s market value.
|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 24.7 hedge funds with bullish positions and the average amount invested in these stocks was $370 million. That figure was $449 million in ARES’s case. Planet Fitness Inc (NYSE:PLNT) is the most popular stock in this table. On the other hand Enel Chile S.A. (NYSE:ENIC) is the least popular one with only 5 bullish hedge fund positions. Ares Management Corp (NYSE:ARES) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ARES is 39. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately ARES wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ARES investors were disappointed as the stock returned 2.8% in the third 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 in 2020.
Disclosure: None. This article was originally published at Insider Monkey.