It has been a fantastic year for equity investors as Donald Trump pressured Federal Reserve to reduce interest rates and finalized the first leg of a trade deal with China. If you were a passive index fund investor, you had seen gains of 31% in your equity portfolio in 2019. However, if you were an active investor putting your money into hedge funds' favorite stocks, you had seen gains of more than 41%. In this article we are going to take a look at how hedge funds feel about a stock like Wyndham Hotels & Resorts, Inc. (NYSE:WH) and compare its performance against hedge funds' favorite stocks.
Is Wyndham Hotels & Resorts, Inc. (NYSE:WH) an attractive investment today? The best stock pickers are turning less bullish. The number of bullish hedge fund positions decreased by 4 in recent months. Our calculations also showed that WH 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). WH was in 36 hedge funds' portfolios at the end of September. There were 40 hedge funds in our database with WH positions at the end of the previous quarter.
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_255014" align="aligncenter" width="450"] Clint Carlson of Carlson Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example 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. 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 is still extremely cheap despite already gaining 20 percent. Now we're going to analyze the fresh hedge fund action encompassing Wyndham Hotels & Resorts, Inc. (NYSE:WH).
How are hedge funds trading Wyndham Hotels & Resorts, Inc. (NYSE:WH)?
At the end of the third quarter, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards WH over the last 17 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Iridian Asset Management held the most valuable stake in Wyndham Hotels & Resorts, Inc. (NYSE:WH), which was worth $138.4 million at the end of the third quarter. On the second spot was Millennium Management which amassed $95.9 million worth of shares. Tremblant Capital, Carlson Capital, and Permian Investment 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 Permian Investment Partners allocated the biggest weight to Wyndham Hotels & Resorts, Inc. (NYSE:WH), around 14.68% of its 13F portfolio. Marlowe Partners is also relatively very bullish on the stock, earmarking 8.08 percent of its 13F equity portfolio to WH.
Since Wyndham Hotels & Resorts, Inc. (NYSE:WH) has witnessed declining sentiment from the aggregate hedge fund industry, it's easy to see that there were a few funds who sold off their positions entirely last quarter. At the top of the heap, Steve Cohen's Point72 Asset Management dumped the largest investment of the 750 funds monitored by Insider Monkey, totaling close to $29.7 million in stock, and Andrew Kurita's Kettle Hill Capital Management was right behind this move, as the fund dropped about $7.9 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 4 funds last quarter.
Let's also examine hedge fund activity in other stocks similar to Wyndham Hotels & Resorts, Inc. (NYSE:WH). These stocks are Hawaiian Electric Industries, Inc. (NYSE:HE), Nutanix, Inc. (NASDAQ:NTNX), Companhia Energetica de Minas Gerais (NYSE:CIG), and Choice Hotels International, Inc. (NYSE:CHH). All of these stocks' market caps are similar to WH's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HE,14,189464,-3 NTNX,24,320502,-1 CIG,8,54517,0 CHH,20,171880,1 Average,16.5,184091,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $184 million. That figure was $801 million in WH's case. Nutanix, Inc. (NASDAQ:NTNX) is the most popular stock in this table. On the other hand Companhia Energetica de Minas Gerais (NYSE:CIG) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Wyndham Hotels & Resorts, Inc. (NYSE:WH) is more popular among hedge funds. 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. Hedge funds were also right about betting on WH as the stock returned 41.8% so far in 2019 (through 12/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations. 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.