Is Apollo Investment Corp. (AINV) Going to Burn These Hedge Funds?

While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Apollo Investment Corp. (NASDAQ:AINV).

Is Apollo Investment Corp. (NASDAQ:AINV) an excellent stock to buy now? Money managers were in a pessimistic mood. The number of bullish hedge fund positions retreated by 1 in recent months. Apollo Investment Corp. (NASDAQ:AINV) was in 10 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 20. Our calculations also showed that AINV isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 11 hedge funds in our database with AINV holdings at the end of March.

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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. 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 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

Ken Griffin of Citadel Investment Group

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let’s check out the latest hedge fund action regarding Apollo Investment Corp. (NASDAQ:AINV).

Do Hedge Funds Think AINV Is A Good Stock To Buy Now?

At the end of June, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in AINV over the last 24 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Arrowstreet Capital was the largest shareholder of Apollo Investment Corp. (NASDAQ:AINV), with a stake worth $18.5 million reported as of the end of June. Trailing Arrowstreet Capital was Two Sigma Advisors, which amassed a stake valued at $7 million. D E Shaw, Citadel Investment Group, and McKinley Capital 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 McKinley Capital Management allocated the biggest weight to Apollo Investment Corp. (NASDAQ:AINV), around 0.11% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, designating 0.08 percent of its 13F equity portfolio to AINV.

Because Apollo Investment Corp. (NASDAQ:AINV) has witnessed falling interest from hedge fund managers, it’s easy to see that there were a few hedgies that slashed their entire stakes in the second quarter. At the top of the heap, Michael Gelband’s ExodusPoint Capital dumped the biggest investment of the “upper crust” of funds followed by Insider Monkey, totaling about $0.6 million in stock. Donald Sussman’s fund, Paloma Partners, also sold off its stock, about $0.2 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 1 funds in the second quarter.

Let’s go over hedge fund activity in other stocks similar to Apollo Investment Corp. (NASDAQ:AINV). These stocks are Banc of California, Inc. (NYSE:BANC), Energy Fuels Inc (NYSE:UUUU), AxoGen, Inc. (NASDAQ:AXGN), Natus Medical Inc (NASDAQ:NTUS), Lakeland Bancorp, Inc. (NASDAQ:LBAI), Warrior Met Coal Inc. (NYSE:HCC), and Travere Therapeutics, Inc. (NASDAQ:TVTX). This group of stocks’ market valuations match AINV’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.3 hedge funds with bullish positions and the average amount invested in these stocks was $110 million. That figure was $37 million in AINV’s case. Travere Therapeutics, Inc. (NASDAQ:TVTX) is the most popular stock in this table. On the other hand Energy Fuels Inc (NYSE:UUUU) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Apollo Investment Corp. (NASDAQ:AINV) is even less popular than UUUU. Our overall hedge fund sentiment score for AINV is 19. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds dodged a bullet by taking a bearish stance towards AINV. Our calculations showed that the top 5 most popular hedge fund stocks returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 25.7% in 2021 through September 27th but managed to beat the market again by 6.2 percentage points. Unfortunately AINV wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was very bearish); AINV investors were disappointed as the stock returned -1.7% since the end of the second quarter (through 9/27) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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