"Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn't by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today's darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn't attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal," said Vilas Fund in its Q1 investor letter. We aren't sure whether 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 Investment Corp. (NASDAQ:AINV) in order to identify whether reputable and successful top money managers continue to believe in its potential.
Apollo Investment Corp. (NASDAQ:AINV) has experienced a decrease in enthusiasm from smart money of late. AINV was in 6 hedge funds' portfolios at the end of June. There were 9 hedge funds in our database with AINV positions at the end of the previous quarter. Our calculations also showed that AINV isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 40 percentage points since May 2014 through May 30, 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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a gander at the latest hedge fund action surrounding Apollo Investment Corp. (NASDAQ:AINV).
What does smart money think about Apollo Investment Corp. (NASDAQ:AINV)?
Heading into the third quarter of 2019, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -33% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AINV over the last 16 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
More specifically, Citadel Investment Group was the largest shareholder of Apollo Investment Corp. (NASDAQ:AINV), with a stake worth $14.1 million reported as of the end of March. Trailing Citadel Investment Group was Arrowstreet Capital, which amassed a stake valued at $8 million. D E Shaw, McKinley Capital Management, and Bulldog Investors were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Apollo Investment Corp. (NASDAQ:AINV) has experienced falling interest from the smart money, it's safe to say that there is a sect of hedge funds that elected to cut their entire stakes in the second quarter. Intriguingly, Daniel Johnson's Gillson Capital said goodbye to the largest stake of the 750 funds watched by Insider Monkey, totaling close to $3.1 million in stock, and Paul Marshall and Ian Wace's Marshall Wace LLP was right behind this move, as the fund cut about $1.7 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 3 funds in the second quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Apollo Investment Corp. (NASDAQ:AINV) but similarly valued. We will take a look at Atlas Air Worldwide Holdings, Inc. (NASDAQ:AAWW), First Bancorp (NASDAQ:FBNC), Hess Midstream Partners LP (NYSE:HESM), and Tabula Rasa HealthCare, Inc. (NASDAQ:TRHC). This group of stocks' market valuations resemble AINV's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AAWW,16,71856,-3 FBNC,14,87532,-2 HESM,6,9398,0 TRHC,7,33253,0 Average,10.75,50510,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $51 million. That figure was $30 million in AINV's case. Atlas Air Worldwide Holdings, Inc. (NASDAQ:AAWW) is the most popular stock in this table. On the other hand Hess Midstream Partners LP (NYSE:HESM) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Apollo Investment Corp. (NASDAQ:AINV) is even less popular than HESM. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on AINV, though not to the same extent, as the stock returned 4.6% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.