How do we determine whether Ares Capital Corporation (NASDAQ:ARCC) makes for a good investment at the moment? We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
Is Ares Capital Corporation (NASDAQ:ARCC) ready to rally soon? The best stock pickers are really taking an optimistic view. The number of bullish hedge fund positions swelled by 2 in recent months. 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 Communications Sales & Leasing Inc (NASDAQ:CSAL), Bemis Company, Inc. (NYSE:BMS), and Bio-Rad Laboratories, Inc. (NYSE:BIO) to gather more data points.
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
How have hedgies been trading Ares Capital Corporation (NASDAQ:ARCC)?
At the end of the third quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a rise of 12% from the second quarter of 2016. By comparison, 18 hedge funds held shares or bullish call options in ARCC heading into this year, after a steep drop in Q4 2015. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Charles Clough’s Clough Capital Partners has the number one position in Ares Capital Corporation (NASDAQ:ARCC), worth close to $49.6 million, accounting for 2.6% of its total 13F portfolio. The second largest stake is held by John Overdeck and David Siegel of Two Sigma Advisors which holds a $29.2 million position. Other professional money managers with similar optimism consist of Israel Englander’s Millennium Management, David E. Shaw’s D E Shaw, and Neil Chriss’ Hutchin Hill Capital. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
As one would reasonably expect, some big names were leading the bulls’ herd. Hutchin Hill Capital initiated the most outsized position in Ares Capital Corporation (NASDAQ:ARCC) which had $10.1 million invested in the company at the end of the quarter. Steve Pei’s Gratia Capital also made a $4.2 million investment in the stock during the quarter. The following funds were also among the new ARCC investors: Ken Griffin’s Citadel Investment Group, Robert I. Usdan and Wayne K. Goldstein’s Endicott Management, and Bruce Silver’s Silver Capital Management LLC.
Let’s now review hedge fund activity in other stocks similar to Ares Capital Corporation (NASDAQ:ARCC). We will take a look at Communications Sales & Leasing Inc (NASDAQ:CSAL), Bemis Company, Inc. (NYSE:BMS), Bio-Rad Laboratories, Inc. (NYSE:BIO), and Allison Transmission Holdings Inc (NYSE:ALSN). This group of stocks’ market valuations are similar to ARCC’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $776 million. That figure was $172 million in ARCC’s case. Allison Transmission Holdings Inc (NYSE:ALSN) is the most popular stock in this table. On the other hand Bemis Company, Inc. (NYSE:BMS) is the least popular one with only 16 bullish hedge fund positions. Ares Capital Corporation (NASDAQ:ARCC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard ALSN might be a better candidate to consider taking a long position in.