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. Keeping this in mind, let’s take a look at whether Apollo Commercial Real Est. Finance Inc (NYSE:ARI) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Is Apollo Commercial Real Est. Finance Inc (NYSE:ARI) a buy, sell, or hold? The smart money is in a bullish mood. The number of long hedge fund positions moved up by 6 recently. Our calculations also showed that ARI 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). ARI was in 16 hedge funds’ portfolios at the end of December. There were 10 hedge funds in our database with ARI holdings at the end of the previous quarter.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David Harding of Winton Capital Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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 we’re going to take a peek at the latest hedge fund action surrounding Apollo Commercial Real Est. Finance Inc (NYSE:ARI).
Hedge fund activity in Apollo Commercial Real Est. Finance Inc (NYSE:ARI)
Heading into the first quarter of 2020, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 60% from one quarter earlier. By comparison, 10 hedge funds held shares or bullish call options in ARI a year ago. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, David Harding’s Winton Capital Management has the most valuable position in Apollo Commercial Real Est. Finance Inc (NYSE:ARI), worth close to $27.5 million, corresponding to 0.4% of its total 13F portfolio. Coming in second is Israel Englander of Millennium Management, with a $17.8 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors with similar optimism consist of Renaissance Technologies, Israel Englander’s Millennium Management and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Winton Capital Management allocated the biggest weight to Apollo Commercial Real Est. Finance Inc (NYSE:ARI), around 0.39% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, designating 0.31 percent of its 13F equity portfolio to ARI.
Now, specific money managers have jumped into Apollo Commercial Real Est. Finance Inc (NYSE:ARI) headfirst. Millennium Management, managed by Israel Englander, assembled the most valuable position in Apollo Commercial Real Est. Finance Inc (NYSE:ARI). Millennium Management had $2.1 million invested in the company at the end of the quarter. Karim Abbadi and Edward McBride’s Centiva Capital also made a $1 million investment in the stock during the quarter. The other funds with brand new ARI positions are Benjamin A. Smith’s Laurion Capital Management, D. E. Shaw’s D E Shaw, and Michael Gelband’s ExodusPoint Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Apollo Commercial Real Est. Finance Inc (NYSE:ARI) but similarly valued. We will take a look at KAR Auction Services Inc (NYSE:KAR), NuStar Energy L.P. (NYSE:NS), Acacia Communications, Inc. (NASDAQ:ACIA), and Zai Lab Limited (NASDAQ:ZLAB). All of these stocks’ market caps match ARI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KAR | 26 | 399012 | -7 |
| NS | 7 | 27233 | 4 |
| ACIA | 31 | 644307 | 4 |
| ZLAB | 26 | 350732 | 5 |
| Average | 22.5 | 355321 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $355 million. That figure was $81 million in ARI’s case. Acacia Communications, Inc. (NASDAQ:ACIA) is the most popular stock in this table. On the other hand NuStar Energy L.P. (NYSE:NS) is the least popular one with only 7 bullish hedge fund positions. Apollo Commercial Real Est. Finance Inc (NYSE:ARI) 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately ARI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ARI investors were disappointed as the stock returned -59.4% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
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.
