While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Hyatt Hotels Corporation (NYSE:H) and see how the stock performed in comparison to hedge funds' consensus picks.
Hyatt Hotels Corporation (NYSE:H) was in 28 hedge funds' portfolios at the end of September. H investors should pay attention to an increase in hedge fund interest of late. There were 23 hedge funds in our database with H positions at the end of the previous quarter. Our calculations also showed that H isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_365194" align="aligncenter" width="450"] David E. Shaw of D.E. Shaw[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind let's review the key hedge fund action regarding Hyatt Hotels Corporation (NYSE:H).
What does smart money think about Hyatt Hotels Corporation (NYSE:H)?
Heading into the fourth quarter of 2019, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 22% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in H over the last 17 quarters. 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, Robert Joseph Caruso's Select Equity Group has the largest position in Hyatt Hotels Corporation (NYSE:H), worth close to $372.3 million, amounting to 2.5% of its total 13F portfolio. Sitting at the No. 2 spot is Long Pond Capital, led by John Khoury, holding a $218.9 million position; the fund has 5.7% of its 13F portfolio invested in the stock. Remaining peers that hold long positions encompass Gabriel Plotkin's Melvin Capital Management, David E. Shaw's D E Shaw and Greg Poole's Echo Street Capital Management. In terms of the portfolio weights assigned to each position Long Pond Capital allocated the biggest weight to Hyatt Hotels Corporation (NYSE:H), around 5.71% of its 13F portfolio. Wexford Capital is also relatively very bullish on the stock, designating 3.15 percent of its 13F equity portfolio to H.
As aggregate interest increased, some big names were leading the bulls' herd. Citadel Investment Group, managed by Ken Griffin, assembled the most outsized position in Hyatt Hotels Corporation (NYSE:H). Citadel Investment Group had $5.7 million invested in the company at the end of the quarter. Lee Ainslie's Maverick Capital also initiated a $3.1 million position during the quarter. The other funds with brand new H positions are Mike Vranos's Ellington, Bruce Kovner's Caxton Associates, and Renee Yao's Neo Ivy Capital.
Let's go over hedge fund activity in other stocks similar to Hyatt Hotels Corporation (NYSE:H). We will take a look at Fortune Brands Home & Security Inc (NYSE:FBHS), AMERCO (NASDAQ:UHAL), Bausch Health Companies Inc. (NYSE:BHC), and Voya Financial Inc (NYSE:VOYA). All of these stocks' market caps match H's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FBHS,33,555866,2 UHAL,10,400813,-5 BHC,32,1808152,1 VOYA,37,1076870,-6 Average,28,960425,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $960 million. That figure was $932 million in H's case. Voya Financial Inc (NYSE:VOYA) is the most popular stock in this table. On the other hand AMERCO (NASDAQ:UHAL) is the least popular one with only 10 bullish hedge fund positions. Hyatt Hotels Corporation (NYSE:H) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. A small number of hedge funds were also right about betting on H, though not to the same extent, as the stock returned 33.7% in 2019 (as of 12/23) and outperformed the market. 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.