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 (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 835 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of December 31st, 2019. What do these smart investors think about Ares Management L.P. (NYSE:ARES)?
Is Ares Management L.P. (NYSE:ARES) the right pick for your portfolio? Prominent investors are taking an optimistic view. The number of bullish hedge fund bets increased by 1 recently. Our calculations also showed that ARES 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). ARES was in 18 hedge funds’ portfolios at the end of December. There were 17 hedge funds in our database with ARES positions at the end of the previous quarter.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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.
Sander Gerber of Hudson Bay Capital
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. Now let’s review the fresh hedge fund action surrounding Ares Management L.P. (NYSE:ARES).
Hedge fund activity in Ares Management L.P. (NYSE:ARES)
At the end of the fourth quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from the previous quarter. By comparison, 11 hedge funds held shares or bullish call options in ARES a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
More specifically, Royce & Associates was the largest shareholder of Ares Management L.P. (NYSE:ARES), with a stake worth $116 million reported as of the end of September. Trailing Royce & Associates was Citadel Investment Group, which amassed a stake valued at $46.7 million. Junto Capital Management, Millennium Management, and Becker Drapkin Management 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 Becker Drapkin Management allocated the biggest weight to Ares Management L.P. (NYSE:ARES), around 8.69% of its 13F portfolio. Lee Capital Management is also relatively very bullish on the stock, designating 2.31 percent of its 13F equity portfolio to ARES.
As aggregate interest increased, key money managers were leading the bulls’ herd. Junto Capital Management, managed by James Parsons, established the most outsized position in Ares Management L.P. (NYSE:ARES). Junto Capital Management had $13.1 million invested in the company at the end of the quarter. Sander Gerber’s Hudson Bay Capital Management also initiated a $5 million position during the quarter. The other funds with brand new ARES positions are Michael Kahan and Jeremy Kahan’s North Peak Capital, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Noam Gottesman’s GLG Partners.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Ares Management L.P. (NYSE:ARES) but similarly valued. We will take a look at Aspen Technology, Inc. (NASDAQ:AZPN), Juniper Networks, Inc. (NYSE:JNPR), China Southern Airlines Co Ltd (NYSE:ZNH), and AerCap Holdings N.V. (NYSE:AER). This group of stocks’ market values are closest to ARES’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AZPN | 37 | 1277921 | 6 |
| JNPR | 37 | 734511 | 5 |
| ZNH | 3 | 13907 | 1 |
| AER | 36 | 1423682 | 5 |
| Average | 28.25 | 862505 | 4.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $863 million. That figure was $236 million in ARES’s case. Aspen Technology, Inc. (NASDAQ:AZPN) is the most popular stock in this table. On the other hand China Southern Airlines Co Ltd (NYSE:ZNH) is the least popular one with only 3 bullish hedge fund positions. Ares Management L.P. (NYSE:ARES) is not the least popular stock in this group but hedge fund interest is still below average. 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 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. A small number of hedge funds were also right about betting on ARES as the stock returned -22.2% during the same time period and outperformed the market by an even larger margin.
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.
