Is Ares Capital Corporation (NASDAQ:ARCC) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is ARCC a good stock to buy now? The best stock pickers were in a bullish mood. The number of long hedge fund positions improved by 3 in recent months. Ares Capital Corporation (NASDAQ:ARCC) was in 22 hedge funds’ portfolios at the end of September. The all time high for this statistic is 27. Our calculations also showed that ARCC isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
In the financial world there are dozens of tools stock market investors can use to assess stocks. A duo of the less utilized tools are hedge fund and insider trading moves. We have shown that, historically, those who follow the best picks of the elite money managers can beat the broader indices by a superb margin (see the details here).
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 recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. With all of this in mind let’s view the new hedge fund action regarding Ares Capital Corporation (NASDAQ:ARCC).
Do Hedge Funds Think ARCC Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 16% from the previous quarter. By comparison, 23 hedge funds held shares or bullish call options in ARCC a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
Among these funds, Arrowstreet Capital held the most valuable stake in Ares Capital Corporation (NASDAQ:ARCC), which was worth $29.7 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $20.7 million worth of shares. Clough Capital Partners, McKinley Capital Management, and Citadel Investment Group 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 Tegean Capital Management allocated the biggest weight to Ares Capital Corporation (NASDAQ:ARCC), around 7.9% of its 13F portfolio. Lee Capital Management is also relatively very bullish on the stock, dishing out 1.49 percent of its 13F equity portfolio to ARCC.
As aggregate interest increased, some big names were leading the bulls’ herd. Clough Capital Partners, managed by Charles Clough, assembled the largest position in Ares Capital Corporation (NASDAQ:ARCC). Clough Capital Partners had $12.2 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also made a $4.9 million investment in the stock during the quarter. The following funds were also among the new ARCC investors: Matthew Hulsizer’s PEAK6 Capital Management, Donald Sussman’s Paloma Partners, and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s now review hedge fund activity in other stocks similar to Ares Capital Corporation (NASDAQ:ARCC). These stocks are RealPage, Inc. (NASDAQ:RP), CRISPR Therapeutics AG (NASDAQ:CRSP), Donaldson Company, Inc. (NYSE:DCI), PLDT Inc. (NYSE:PHI), Darling Ingredients Inc. (NYSE:DAR), Inphi Corporation (NASDAQ:IPHI), and Post Holdings Inc (NYSE:POST). This group of stocks’ market valuations are closest to ARCC’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 28.3 hedge funds with bullish positions and the average amount invested in these stocks was $542 million. That figure was $107 million in ARCC’s case. RealPage, Inc. (NASDAQ:RP) is the most popular stock in this table. On the other hand PLDT Inc. (NYSE:PHI) is the least popular one with only 8 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. Our overall hedge fund sentiment score for ARCC is 55. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on ARCC as the stock returned 19.8% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.