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. The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on December 31st. We at Insider Monkey have made an extensive database of more than 835 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Service Properties Trust (NASDAQ:SVC) based on those filings.
Is Service Properties Trust (NASDAQ:SVC) a buy here? Investors who are in the know are turning bullish. The number of bullish hedge fund positions inched up by 2 lately. Our calculations also showed that SVC 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).
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 more than 41 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 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_30600" align="aligncenter" width="400"] Bruce Kovner of Caxton Associates LP[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. With all of this in mind let's check out the new hedge fund action encompassing Service Properties Trust (NASDAQ:SVC).
Hedge fund activity in Service Properties Trust (NASDAQ:SVC)
At Q4's end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the third quarter of 2019. On the other hand, there were a total of 16 hedge funds with a bullish position in SVC a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Richard S. Pzena's Pzena Investment Management has the biggest position in Service Properties Trust (NASDAQ:SVC), worth close to $33.6 million, accounting for 0.2% of its total 13F portfolio. The second largest stake is held by Dmitry Balyasny of Balyasny Asset Management, with a $6.6 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining peers that are bullish contain Kenneth A. Moffet's Hourglass Capital, John Overdeck and David Siegel's Two Sigma Advisors and Renaissance Technologies. In terms of the portfolio weights assigned to each position Hourglass Capital allocated the biggest weight to Service Properties Trust (NASDAQ:SVC), around 1.72% of its 13F portfolio. Pzena Investment Management is also relatively very bullish on the stock, designating 0.16 percent of its 13F equity portfolio to SVC.
As one would reasonably expect, some big names were leading the bulls' herd. Balyasny Asset Management, managed by Dmitry Balyasny, created the biggest position in Service Properties Trust (NASDAQ:SVC). Balyasny Asset Management had $6.6 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also made a $0.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Bruce Kovner's Caxton Associates LP, Matthew Tewksbury's Stevens Capital Management, and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.
Let's check out hedge fund activity in other stocks similar to Service Properties Trust (NASDAQ:SVC). We will take a look at Alcoa Corporation (NYSE:AA), Medallia, Inc. (NYSE:MDLA), Gates Industrial Corporation plc (NYSE:GTES), and Two Harbors Investment Corp (NYSE:TWO). This group of stocks' market values are similar to SVC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AA,30,660355,-3 MDLA,22,301398,-1 GTES,9,61213,-6 TWO,20,109765,4 Average,20.25,283183,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $283 million. That figure was $59 million in SVC's case. Alcoa Corporation (NYSE:AA) is the most popular stock in this table. On the other hand Gates Industrial Corporation plc (NYSE:GTES) is the least popular one with only 9 bullish hedge fund positions. Service Properties Trust (NASDAQ:SVC) 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately SVC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SVC investors were disappointed as the stock returned -75.7% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.