We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Host Hotels and Resorts Inc (NYSE:HST).
Is Host Hotels and Resorts Inc (NYSE:HST) ready to rally soon? Investors who are in the know are becoming less hopeful. The number of bullish hedge fund positions fell by 1 recently. Our calculations also showed that HST isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to 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 hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_26345" align="aligncenter" width="489"] Paul Singer of Elliott Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to view the key hedge fund action encompassing Host Hotels and Resorts Inc (NYSE:HST).
How have hedgies been trading Host Hotels and Resorts Inc (NYSE:HST)?
Heading into the fourth quarter of 2019, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the second quarter of 2019. On the other hand, there were a total of 21 hedge funds with a bullish position in HST a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Host Hotels and Resorts Inc (NYSE:HST) was held by GLG Partners, which reported holding $105.5 million worth of stock at the end of September. It was followed by Long Pond Capital with a $88.6 million position. Other investors bullish on the company included Echo Street Capital Management, D E Shaw, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Long Pond Capital allocated the biggest weight to Host Hotels and Resorts Inc (NYSE:HST), around 2.31% of its portfolio. Echo Street Capital Management is also relatively very bullish on the stock, designating 1.24 percent of its 13F equity portfolio to HST.
Because Host Hotels and Resorts Inc (NYSE:HST) has faced falling interest from the smart money, it's easy to see that there was a specific group of money managers that decided to sell off their positions entirely last quarter. Interestingly, Jeffrey Furber's AEW Capital Management dumped the biggest stake of the "upper crust" of funds followed by Insider Monkey, worth an estimated $84.8 million in stock. Stuart J. Zimmer's fund, Zimmer Partners, also dumped its stock, about $5.5 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds last quarter.
Let's go over hedge fund activity in other stocks similar to Host Hotels and Resorts Inc (NYSE:HST). These stocks are The J.M. Smucker Company (NYSE:SJM), Tenaris S.A. (NYSE:TS), NetApp Inc. (NASDAQ:NTAP), and Molson Coors Brewing Company (NYSE:TAP). All of these stocks' market caps are similar to HST's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SJM,26,453856,0 TS,11,412435,-5 NTAP,24,735652,-2 TAP,23,446659,-2 Average,21,512151,-2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $512 million. That figure was $594 million in HST's case. The J.M. Smucker Company (NYSE:SJM) is the most popular stock in this table. On the other hand Tenaris S.A. (NYSE:TS) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Host Hotels and Resorts Inc (NYSE:HST) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately HST wasn't nearly as popular as these 20 stocks and hedge funds that were betting on HST were disappointed as the stock returned 1.2% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.