Is Apollo Commercial Real Est. Finance Inc (ARI) A Good Stock To Buy?

Reymerlyn Martin

Tue, Apr 30, 2019, 6:10 PM

"Value has performed relatively poorly since the 2017 shift, but we believe challenges to the S&P 500’s dominance are mounting and resulting active opportunities away from the index are growing. At some point, this fault line will break, likely on the back of rising rates, and all investors will be reminded that the best time to diversify away from the winners is when it is most painful. The bargain of capturing long-term value may be short-term pain, but enough is eventually enough and it comes time to harvest the benefits.," said Clearbridge Investments in its market commentary. We aren't sure whether long-term interest rates will top 5% and value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. That's why we believe it would be worthwhile to take a look at the hedge fund sentiment on Apollo Commercial Real Est. Finance Inc (NYSE:ARI) in order to identify whether reputable and successful top money managers continue to believe in its potential.

Is Apollo Commercial Real Est. Finance Inc (NYSE:ARI) a first-rate investment now? Investors who are in the know are betting on the stock. The number of long hedge fund positions increased by 3 recently. Our calculations also showed that ARI isn't among the 30 most popular stocks among hedge funds. ARI was in 10 hedge funds' portfolios at the end of December. There were 7 hedge funds in our database with ARI positions at the end of the previous quarter.

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. Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Let's view the key hedge fund action encompassing Apollo Commercial Real Est. Finance Inc (NYSE:ARI).

How are hedge funds trading Apollo Commercial Real Est. Finance Inc (NYSE:ARI)?

At Q4's end, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 43% from the second quarter of 2018. On the other hand, there were a total of 7 hedge funds with a bullish position in ARI a year ago. So, let's examine 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, Renaissance Technologies, managed by Jim Simons, holds the most valuable position in Apollo Commercial Real Est. Finance Inc (NYSE:ARI). Renaissance Technologies has a $13 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On Renaissance Technologies's heels is Millennium Management, led by Israel Englander, holding a $9.6 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that are bullish consist of Cliff Asness's AQR Capital Management, D. E. Shaw's D E Shaw and David Harding's Winton Capital Management.

With a general bullishness amongst the heavyweights, specific money managers were leading the bulls' herd. Whitebox Advisors, managed by Andy Redleaf, created the biggest position in Apollo Commercial Real Est. Finance Inc (NYSE:ARI). Whitebox Advisors had $27.8 million invested in the company at the end of the quarter. Ken Griffin's Citadel Investment Group also initiated a $12.4 million position during the quarter. The other funds with new positions in the stock are Israel Englander's Millennium Management, Michael A. Price and Amos Meron's Empyrean Capital Partners, and Michael Platt and William Reeves's BlueCrest Capital Mgmt..

Let's go over hedge fund activity in other stocks similar to Apollo Commercial Real Est. Finance Inc (NYSE:ARI). We will take a look at 360 Finance, Inc. (NASDAQ:QFIN), First Interstate Bancsystem Inc (NASDAQ:FIBK), Tenneco Inc (NYSE:TEN), and Golar LNG Limited (NASDAQ:GLNG). This group of stocks' market caps match ARI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position QFIN,2,1897,2 FIBK,13,82956,1 TEN,25,239099,3 GLNG,32,501581,-2 Average,18,206383,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $206 million. That figure was $35 million in ARI's case. Golar LNG Limited (NASDAQ:GLNG) is the most popular stock in this table. On the other hand 360 Finance, Inc. (NASDAQ:QFIN) is the least popular one with only 2 bullish hedge fund positions. Apollo Commercial Real Est. Finance Inc (NYSE:ARI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately ARI wasn't nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); ARI investors were disappointed as the stock returned 13.5% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.

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

Related Content