How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Apollo Global Management Inc (NYSE:APO) and determine whether hedge funds had an edge regarding this stock.
Apollo Global Management Inc (NYSE:APO) investors should pay attention to a decrease in hedge fund sentiment in recent months. Apollo Global Management Inc (NYSE:APO) was in 29 hedge funds' portfolios at the end of June. The all time high for this statistics is 34. Our calculations also showed that APO isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David Brown Hawk Ridge Partners
David Brown of Hawk Ridge Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind let's take a peek at the key hedge fund action encompassing Apollo Global Management Inc (NYSE:APO).
How have hedgies been trading Apollo Global Management Inc (NYSE:APO)?
At Q2's end, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from the previous quarter. By comparison, 23 hedge funds held shares or bullish call options in APO 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.
More specifically, Tiger Global Management LLC was the largest shareholder of Apollo Global Management Inc (NYSE:APO), with a stake worth $1693 million reported as of the end of September. Trailing Tiger Global Management LLC was Markel Gayner Asset Management, which amassed a stake valued at $50.5 million. MIG Capital, Hawk Ridge Management, and Lakewood Capital Management 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 Dorset Management allocated the biggest weight to Apollo Global Management Inc (NYSE:APO), around 8.18% of its 13F portfolio. Guardian Point Capital is also relatively very bullish on the stock, earmarking 7.27 percent of its 13F equity portfolio to APO.
Because Apollo Global Management Inc (NYSE:APO) has faced falling interest from the entirety of the hedge funds we track, it's safe to say that there lies a certain "tier" of fund managers who sold off their full holdings in the second quarter. Intriguingly, Robert Pohly's Samlyn Capital said goodbye to the biggest position of the 750 funds followed by Insider Monkey, valued at close to $13.7 million in stock, and Michael Gelband's ExodusPoint Capital was right behind this move, as the fund cut about $8.1 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 5 funds in the second quarter.
Let's go over hedge fund activity in other stocks similar to Apollo Global Management Inc (NYSE:APO). These stocks are Dynatrace, Inc. (NYSE:DT), Teledyne Technologies Incorporated (NYSE:TDY), Black Knight, Inc. (NYSE:BKI), Halliburton Company (NYSE:HAL), Equity Lifestyle Properties, Inc. (NYSE:ELS), Principal Financial Group Inc (NASDAQ:PFG), and Neurocrine Biosciences, Inc. (NASDAQ:NBIX). All of these stocks' market caps match APO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DT,41,1061434,6 TDY,34,445927,13 BKI,44,595730,12 HAL,30,717639,-2 ELS,31,442219,0 PFG,31,188356,4 NBIX,38,1195826,0 Average,35.6,663876,4.7 [/table]
As you can see these stocks had an average of 35.6 hedge funds with bullish positions and the average amount invested in these stocks was $664 million. That figure was $2071 million in APO's case. Black Knight, Inc. (NYSE:BKI) is the most popular stock in this table. On the other hand Halliburton Company (NYSE:HAL) is the least popular one with only 30 bullish hedge fund positions. Compared to these stocks Apollo Global Management Inc (NYSE:APO) is even less popular than HAL. Our overall hedge fund sentiment score for APO is 22. 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. Hedge funds dodged a bullet by taking a bearish stance towards APO. 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 23.8% in 2020 through September 14th but managed to beat the market by 17.6 percentage points. Unfortunately APO wasn't nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); APO investors were disappointed as the stock returned -8.1% since the end of Q2 (through 9/14) 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.
