Were Hedge Funds Right About Ares Management Corp (ARES)?
Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Ares Management Corp (NYSE:ARES).
Ares Management Corp (NYSE:ARES) has seen a decrease in support from the world's most elite money managers of late. Ares Management Corp (NYSE:ARES) was in 16 hedge funds' portfolios at the end of March. The all time high for this statistic is 20. There were 20 hedge funds in our database with ARES holdings at the end of December. Our calculations also showed that ARES isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).
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 115 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Paul Tudor Jones of Tudor Investment Corp
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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. Now we're going to take a look at the key hedge fund action regarding Ares Management Corp (NYSE:ARES).
Do Hedge Funds Think ARES Is A Good Stock To Buy Now?
At first quarter's end, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from one quarter earlier. On the other hand, there were a total of 16 hedge funds with a bullish position in ARES a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, HMI Capital was the largest shareholder of Ares Management Corp (NYSE:ARES), with a stake worth $321.7 million reported as of the end of March. Trailing HMI Capital was Royce & Associates, which amassed a stake valued at $63.6 million. Millennium Management, Junto Capital Management, 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 HMI Capital allocated the biggest weight to Ares Management Corp (NYSE:ARES), around 11.47% of its 13F portfolio. Callodine Capital Management is also relatively very bullish on the stock, dishing out 4.62 percent of its 13F equity portfolio to ARES.
Due to the fact that Ares Management Corp (NYSE:ARES) has faced declining sentiment from hedge fund managers, it's easy to see that there was a specific group of hedgies that decided to sell off their positions entirely last quarter. Interestingly, John Overdeck and David Siegel's Two Sigma Advisors said goodbye to the biggest position of all the hedgies followed by Insider Monkey, valued at close to $4.4 million in stock. Ryan Tolkin (CIO)'s fund, Schonfeld Strategic Advisors, also dropped its stock, about $1.2 million worth. These moves are interesting, as aggregate hedge fund interest fell by 4 funds last quarter.
Let's also examine hedge fund activity in other stocks similar to Ares Management Corp (NYSE:ARES). These stocks are Cognex Corporation (NASDAQ:CGNX), Lumen Technologies, Inc. (NYSE:LUMN), News Corp (NASDAQ:NWS), News Corp (NASDAQ:NWSA), Charles River Laboratories International Inc. (NYSE:CRL), Wynn Resorts, Limited (NASDAQ:WYNN), and ABIOMED, Inc. (NASDAQ:ABMD). All of these stocks' market caps are closest to ARES's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CGNX,34,498509,3 LUMN,32,1004948,3 NWS,21,168400,10 NWSA,35,1235000,3 CRL,42,1118745,-1 WYNN,49,1074268,-3 ABMD,26,1003000,3 Average,34.1,871839,2.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.1 hedge funds with bullish positions and the average amount invested in these stocks was $872 million. That figure was $565 million in ARES's case. Wynn Resorts, Limited (NASDAQ:WYNN) is the most popular stock in this table. On the other hand News Corp (NASDAQ:NWS) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Ares Management Corp (NYSE:ARES) is even less popular than NWS. Our overall hedge fund sentiment score for ARES is 25. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.5% in 2021 through July 23rd but managed to beat the market by 10.1 percentage points. A small number of hedge funds were also right about betting on ARES, though not to the same extent, as the stock returned 19.7% since the end of March (through July 23rd) and outperformed the market as well.
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Disclosure: None. This article was originally published at Insider Monkey.
