Should You Buy Ares Capital Corporation (ARCC)?

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With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. Polar Capital, managed by Brian Ashford-Russell and Tim Woolley, assembled the biggest position in Ares Capital Corporation (NASDAQ:ARCC). Polar Capital had $4.7 million invested in the company at the end of the quarter. Robert Raiff’s Raiff Partners also initiated a $3.4 million position during the quarter. The other funds with brand new ARCC positions are Anand Parekh’s Alyeska Investment Group, Thomas G. Maheras’ Tegean Capital Management, and Peter A. Wright’s P.A.W. CAPITAL PARTNERS.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Ares Capital Corporation (NASDAQ:ARCC) but similarly valued. These stocks are Servicemaster Global Holdings Inc (NYSE:SERV), Gentex Corporation (NASDAQ:GNTX), Pandora Media Inc (NYSE:P), and FMC Corp (NYSE:FMC). This group of stocks’ market caps match ARCC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SERV 34 775727 -1
GNTX 26 225986 0
P 36 1250498 6
FMC 33 658866 12

As you can see these stocks had an average of 32.25 hedge funds with bullish positions and the average amount invested in these stocks was $728 million. That figure was $58 million in ARCC’s case. Pandora Media Inc (NYSE:P) is the most popular stock in this table. On the other hand Gentex Corporation (NASDAQ:GNTX) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks Ares Capital Corporation (NASDAQ:ARCC) is even less popular than GNTX. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

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