Is Ares Capital Corporation (NASDAQ:ARCC) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is Ares Capital Corporation (NASDAQ:ARCC) an attractive investment right now? Prominent investors are getting less bullish. The number of long hedge fund positions decreased by 2 recently. Our calculations also showed that ARCC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to 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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.
John Overdeck of Two Sigma Advisors
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a glance at the key hedge fund action surrounding Ares Capital Corporation (NASDAQ:ARCC).
What have hedge funds been doing with Ares Capital Corporation (NASDAQ:ARCC)?
Heading into the fourth quarter of 2019, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from one quarter earlier. By comparison, 25 hedge funds held shares or bullish call options in ARCC a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, D E Shaw, managed by David E. Shaw, holds the number one position in Ares Capital Corporation (NASDAQ:ARCC). D E Shaw has a $95.1 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Clough Capital Partners, led by Charles Clough, holding a $33.8 million position; the fund has 2.8% of its 13F portfolio invested in the stock. Some other peers with similar optimism contain Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, John Overdeck and David Siegel’s Two Sigma Advisors and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Clough Capital Partners allocated the biggest weight to Ares Capital Corporation (NASDAQ:ARCC), around 2.8% of its 13F portfolio. Lee Capital Management is also relatively very bullish on the stock, designating 2.44 percent of its 13F equity portfolio to ARCC.
Judging by the fact that Ares Capital Corporation (NASDAQ:ARCC) has witnessed declining sentiment from the smart money, we can see that there was a specific group of fund managers that elected to cut their positions entirely heading into Q4. Intriguingly, Israel Englander’s Millennium Management sold off the biggest position of all the hedgies followed by Insider Monkey, totaling close to $14.5 million in stock, and Thomas G. Maheras’s Tegean Capital Management was right behind this move, as the fund said goodbye to about $4.5 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 2 funds heading into Q4.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Ares Capital Corporation (NASDAQ:ARCC) but similarly valued. We will take a look at Coty Inc (NYSE:COTY), Masimo Corporation (NASDAQ:MASI), Newell Brands Inc. (NASDAQ:NWL), and China Eastern Airlines Corporation Limited (NYSE:CEA). This group of stocks’ market caps match ARCC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| COTY | 22 | 138577 | 3 |
| MASI | 27 | 200916 | -1 |
| NWL | 29 | 1434678 | 0 |
| CEA | 1 | 657 | 0 |
| Average | 19.75 | 443707 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $444 million. That figure was $225 million in ARCC’s case. Newell Brands Inc. (NASDAQ:NWL) is the most popular stock in this table. On the other hand China Eastern Airlines Corporation Limited (NYSE:CEA) is the least popular one with only 1 bullish hedge fund positions. Ares Capital Corporation (NASDAQ:ARCC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately ARCC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ARCC were disappointed as the stock returned 0.5% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
