In this article we will check out the progression of hedge fund sentiment towards American Renal Associates Holdings, Inc (NYSE:ARA) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Hedge fund interest in American Renal Associates Holdings, Inc (NYSE:ARA) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare ARA to other stocks including Fly Leasing Ltd (NYSE:FLY), Eros International plc (NYSE:EROS), and Callon Petroleum Company (NYSE:CPE) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Cliff Asness of AQR Capital Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the fresh hedge fund action encompassing American Renal Associates Holdings, Inc (NYSE:ARA).
Hedge fund activity in American Renal Associates Holdings, Inc (NYSE:ARA)
At the end of the first quarter, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the fourth quarter of 2019. On the other hand, there were a total of 6 hedge funds with a bullish position in ARA a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Centerbridge Partners held the most valuable stake in American Renal Associates Holdings, Inc (NYSE:ARA), which was worth $116.4 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $7 million worth of shares. D E Shaw, Two Sigma Advisors, 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 Centerbridge Partners allocated the biggest weight to American Renal Associates Holdings, Inc (NYSE:ARA), around 28.25% of its 13F portfolio. PDT Partners is also relatively very bullish on the stock, setting aside 0.01 percent of its 13F equity portfolio to ARA.
Because American Renal Associates Holdings, Inc (NYSE:ARA) has faced a decline in interest from the smart money, it’s easy to see that there was a specific group of fund managers that decided to sell off their entire stakes last quarter. Intriguingly, Israel Englander’s Millennium Management dumped the largest investment of all the hedgies tracked by Insider Monkey, totaling an estimated $0.2 million in stock. Cliff Asness’s fund, AQR Capital Management, also cut its stock, about $0.1 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks similar to American Renal Associates Holdings, Inc (NYSE:ARA). We will take a look at Fly Leasing Ltd (NYSE:FLY), Eros International plc (NYSE:EROS), Callon Petroleum Company (NYSE:CPE), and Alphatec Holdings Inc (NASDAQ:ATEC). This group of stocks’ market values match ARA’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FLY | 13 | 23610 | -1 |
| EROS | 8 | 18249 | -3 |
| CPE | 17 | 12018 | -10 |
| ATEC | 15 | 22025 | 1 |
| Average | 13.25 | 18976 | -3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $19 million. That figure was $124 million in ARA’s case. Callon Petroleum Company (NYSE:CPE) is the most popular stock in this table. On the other hand Eros International plc (NYSE:EROS) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks American Renal Associates Holdings, Inc (NYSE:ARA) is even less popular than EROS. Hedge funds dodged a bullet by taking a bearish stance towards ARA. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.9% in 2020 through June 10th but managed to beat the market by 14.2 percentage points. Unfortunately ARA wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); ARA investors were disappointed as the stock returned -4.4% during the second quarter (through June 10th) 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 so far in 2020.
Follow American Renal Associates Holdings Inc. (NYSE:ARA)
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Disclosure: None. This article was originally published at Insider Monkey.
