Were Hedge Funds Right About Apollo Global Management, Inc. (APO)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was Apollo Global Management, Inc. (NYSE:APO).

Apollo Global Management, Inc. (NYSE:APO) has experienced an increase in hedge fund interest lately. APO was in 29 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 24 hedge funds in our database with APO holdings at the end of the previous quarter. Our calculations also showed that APO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

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 S&P 500 ETFs by 41 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 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.

Chase Coleman of Tiger Global

We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader’s corona catalyst trades. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a gander at the new hedge fund action encompassing Apollo Global Management, Inc. (NYSE:APO).

How have hedgies been trading Apollo Global Management, Inc. (NYSE:APO)?

At Q4’s end, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 21% from the third quarter of 2019. By comparison, 22 hedge funds held shares or bullish call options in APO a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

The largest stake in Apollo Global Management, Inc. (NYSE:APO) was held by Tiger Global Management LLC, which reported holding $1796.9 million worth of stock at the end of September. It was followed by Samlyn Capital with a $95 million position. Other investors bullish on the company included Junto Capital Management, Markel Gayner Asset Management, and Select Equity Group. In terms of the portfolio weights assigned to each position Tiger Global Management LLC allocated the biggest weight to Apollo Global Management, Inc. (NYSE:APO), around 9.92% of its 13F portfolio. Concourse Capital Management is also relatively very bullish on the stock, dishing out 5.14 percent of its 13F equity portfolio to APO.

Consequently, some big names have jumped into Apollo Global Management, Inc. (NYSE:APO) headfirst. Junto Capital Management, managed by James Parsons, initiated the most valuable position in Apollo Global Management, Inc. (NYSE:APO). Junto Capital Management had $52.9 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $11.7 million position during the quarter. The following funds were also among the new APO investors: Pasco Alfaro / Richard Tumure’s Miura Global Management, Michael Gelband’s ExodusPoint Capital, and Tim David’s Guardian Point Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Apollo Global Management, Inc. (NYSE:APO) but similarly valued. We will take a look at New Oriental Education & Tech Group Inc. (NYSE:EDU), Tencent Music Entertainment Group (NYSE:TME), Fortis Inc. (NYSE:FTS), and Vulcan Materials Company (NYSE:VMC). This group of stocks’ market values resemble APO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EDU 50 1375166 12
TME 26 515443 10
FTS 14 768397 -1
VMC 52 1631663 -5
Average 35.5 1072667 4

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.5 hedge funds with bullish positions and the average amount invested in these stocks was $1073 million. That figure was $2225 million in APO’s case. Vulcan Materials Company (NYSE:VMC) is the most popular stock in this table. On the other hand Fortis Inc. (NYSE:FTS) is the least popular one with only 14 bullish hedge fund positions. Apollo Global Management, Inc. (NYSE:APO) 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. 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 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately APO wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); APO investors were disappointed as the stock returned -15.5% during the same time period 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.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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