Should You Buy Ares Capital Corporation (ARCC)?

We can judge whether Ares Capital Corporation (NASDAQ:ARCC) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, research shows that these picks historically outperformed the market when we factor in known risk factors.

Is Ares Capital Corporation a buy, sell, or hold? Money managers are in a bullish mood. The number of bullish hedge fund bets rose by 5 in recent months. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Servicemaster Global Holdings Inc (NYSE:SERV), Gentex Corporation (NASDAQ:GNTX), and Pandora Media Inc (NYSE:P) to gather more data points.

Now, let’s take a peek at the latest action regarding Ares Capital Corporation (NASDAQ:ARCC).

What does the smart money think about Ares Capital Corporation (NASDAQ:ARCC)?

At the end of the third quarter, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 28% from the second quarter. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Two Sigma Advisors, managed by John Overdeck and David Siegel, holds the number one position in Ares Capital Corporation (NASDAQ:ARCC). Two Sigma Advisors has a $7.1 million position in the stock, comprising less than 0.1% of its 13F portfolio. The second most bullish fund manager is Millennium Management, led by Israel Englander, holding a $6.6 million position; less than 0.1% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors that hold long positions include Brian Ashford-Russell and Tim Woolley’s Polar Capital, Brian Ashford-Russell and Tim Woolley’s Polar Capital and Amy Minella’s Cardinal Capital.

With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. Polar Capital, managed by Brian Ashford-Russell and Tim Woolley, assembled the biggest position in Ares Capital Corporation (NASDAQ:ARCC). Polar Capital had $4.7 million invested in the company at the end of the quarter. Robert Raiff’s Raiff Partners also initiated a $3.4 million position during the quarter. The other funds with brand new ARCC positions are Anand Parekh’s Alyeska Investment Group, Thomas G. Maheras’ Tegean Capital Management, and Peter A. Wright’s P.A.W. CAPITAL PARTNERS.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Ares Capital Corporation (NASDAQ:ARCC) but similarly valued. These stocks are Servicemaster Global Holdings Inc (NYSE:SERV), Gentex Corporation (NASDAQ:GNTX), Pandora Media Inc (NYSE:P), and FMC Corp (NYSE:FMC). This group of stocks’ market caps match ARCC’s market cap.

As you can see these stocks had an average of 32.25 hedge funds with bullish positions and the average amount invested in these stocks was $728 million. That figure was $58 million in ARCC’s case. Pandora Media Inc (NYSE:P) is the most popular stock in this table. On the other hand Gentex Corporation (NASDAQ:GNTX) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks Ares Capital Corporation (NASDAQ:ARCC) is even less popular than GNTX. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.