Hedge Funds Have Never Been This Bullish On Apollo Commercial Real Estate Finance, Inc. (ARI)

Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter of 2018. Trends reversed 180 degrees during the first half of 2019 amid Powell’s pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the second quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI).

Is Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI) a marvelous investment now? The smart money is in an optimistic mood. The number of long hedge fund positions rose by 2 recently. Our calculations also showed that ARI isn’t among the 30 most popular stocks among hedge funds (view the video below). ARI was in 13 hedge funds’ portfolios at the end of June. There were 11 hedge funds in our database with ARI positions at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.

Dmitry Balyasny

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a peek at the key hedge fund action encompassing Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI).

What does smart money think about Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI)?

At the end of the second quarter, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in ARI over the last 16 quarters. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

No of Hedge Funds with ARI Positions

The largest stake in Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI) was held by Citadel Investment Group, which reported holding $17.5 million worth of stock at the end of March. It was followed by Millennium Management with a $17.5 million position. Other investors bullish on the company included Renaissance Technologies, Millennium Management, and Balyasny Asset Management.

Consequently, some big names have jumped into Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI) headfirst. Element Capital Management, managed by Jeffrey Talpins, created the largest position in Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI). Element Capital Management had $1.8 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also initiated a $1.7 million position during the quarter. The following funds were also among the new ARI investors: Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital, Israel Englander’s Millennium Management, and Michael Gelband’s ExodusPoint Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI) but similarly valued. These stocks are SeaWorld Entertainment Inc (NYSE:SEAS), Triton International Limited (NYSE:TRTN), Taubman Centers, Inc. (NYSE:TCO), and Xencor Inc (NASDAQ:XNCR). This group of stocks’ market valuations are similar to ARI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SEAS 32 1206789 5
TRTN 14 32144 -4
TCO 25 150300 11
XNCR 12 269316 -4
Average 20.75 414637 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $415 million. That figure was $68 million in ARI’s case. SeaWorld Entertainment Inc (NYSE:SEAS) is the most popular stock in this table. On the other hand Xencor Inc (NASDAQ:XNCR) is the least popular one with only 12 bullish hedge fund positions. Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on ARI as the stock returned 6.7% during the same time frame and outperformed the market by an even larger margin.

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