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Were Hedge Funds Right About Apollo Investment Corp. (AINV)?

Debasis Saha

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the fourth quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4 years and analyze what the smart money thinks of Apollo Investment Corp. (NASDAQ:AINV) based on that data.

Apollo Investment Corp. (NASDAQ:AINV) has seen a decrease in activity from the world's largest hedge funds in recent months. AINV was in 9 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 11 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 (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

[caption id="attachment_30600" align="aligncenter" width="400"] Bruce Kovner of Caxton Associates LP[/caption]

Bruce Kovner, Caxton Associates LP
Bruce Kovner, Caxton Associates LP

We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader's corona catalyst trades. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let's take a look at the recent hedge fund action surrounding Apollo Investment Corp. (NASDAQ:AINV).

What have hedge funds been doing with Apollo Investment Corp. (NASDAQ:AINV)?

At the end of the fourth quarter, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AINV over the last 18 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is AINV A Good Stock To Buy?
Is AINV A Good Stock To Buy?

More specifically, Arrowstreet Capital was the largest shareholder of Apollo Investment Corp. (NASDAQ:AINV), with a stake worth $30.8 million reported as of the end of September. Trailing Arrowstreet Capital was D E Shaw, which amassed a stake valued at $5.2 million. McKinley Capital Management, Citadel Investment Group, and Levin Easterly Partners 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 McKinley Capital Management allocated the biggest weight to Apollo Investment Corp. (NASDAQ:AINV), around 0.18% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, setting aside 0.07 percent of its 13F equity portfolio to AINV.

Seeing as Apollo Investment Corp. (NASDAQ:AINV) has faced declining sentiment from hedge fund managers, it's safe to say that there lies a certain "tier" of funds that slashed their entire stakes by the end of the third quarter. Interestingly, Phillip Goldstein, Andrew Dakos and Steven Samuels's Bulldog Investors dumped the largest investment of all the hedgies monitored by Insider Monkey, comprising about $0.9 million in call options, and D. E. Shaw's D E Shaw was right behind this move, as the fund sold off about $0.8 million worth. These transactions are important to note, as total hedge fund interest fell by 2 funds by the end of the third quarter.

Let's also examine 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 CSW Industrials, Inc. (NASDAQ:CSWI), Model N Inc (NYSE:MODN), Central European Media Enterprises Ltd. (NASDAQ:CETV), and Sapiens International Corporation N.V. (NASDAQ:SPNS). This group of stocks' market caps resemble AINV's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CSWI,16,51267,-4 MODN,19,174173,0 CETV,10,41327,0 SPNS,10,41193,2 Average,13.75,76990,-0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $77 million. That figure was $44 million in AINV's case. Model N Inc (NYSE:MODN) is the most popular stock in this table. On the other hand Central European Media Enterprises Ltd. (NASDAQ:CETV) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Apollo Investment Corp. (NASDAQ:AINV) is even less popular than CETV. Hedge funds dodged a bullet by taking a bearish stance towards AINV. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but managed to beat the market by 12.9 percentage points. Unfortunately AINV wasn't nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); AINV investors were disappointed as the stock returned -48.5% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds
5 Most Popular Stocks Among Hedge Funds

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

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