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In this article you are going to find out whether hedge funds think Sunstone Hotel Investors Inc (NYSE:SHO) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Sunstone Hotel Investors Inc (NYSE:SHO) was in 19 hedge funds' portfolios at the end of March. SHO has seen a decrease in activity from the world's largest hedge funds lately. There were 22 hedge funds in our database with SHO holdings at the end of the previous quarter. Our calculations also showed that SHO isn't among the 30 most popular stocks among hedge funds (click for Q1 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.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 S&P 500 ETFs by 58 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 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.
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Dmitry Balyasny of Balyasny Asset Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the 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 fresh hedge fund action encompassing Sunstone Hotel Investors Inc (NYSE:SHO).
Hedge fund activity in Sunstone Hotel Investors Inc (NYSE:SHO)
Heading into the second quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from one quarter earlier. By comparison, 20 hedge funds held shares or bullish call options in SHO a year ago. With hedgies' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Sunstone Hotel Investors Inc (NYSE:SHO), with a stake worth $52.3 million reported as of the end of September. Trailing Renaissance Technologies was Millennium Management, which amassed a stake valued at $12 million. Balyasny Asset Management, Two Sigma Advisors, and Citadel Investment Group 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 Knighthead Capital allocated the biggest weight to Sunstone Hotel Investors Inc (NYSE:SHO), around 1.7% of its 13F portfolio. Balyasny Asset Management is also relatively very bullish on the stock, designating 0.13 percent of its 13F equity portfolio to SHO.
Because Sunstone Hotel Investors Inc (NYSE:SHO) has experienced falling interest from the smart money, logic holds that there exists a select few hedgies who were dropping their entire stakes last quarter. Intriguingly, Greg Poole's Echo Street Capital Management said goodbye to the biggest stake of the 750 funds watched by Insider Monkey, comprising about $30.9 million in stock, and Daniel Johnson's Gillson Capital was right behind this move, as the fund sold off about $8.2 million worth. These moves are interesting, as total hedge fund interest fell by 3 funds last quarter.
Let's now take a look at hedge fund activity in other stocks similar to Sunstone Hotel Investors Inc (NYSE:SHO). These stocks are Columbia Banking System Inc (NASDAQ:COLB), Endava plc (NYSE:DAVA), Sanmina Corporation (NASDAQ:SANM), and Viela Bio, Inc. (NASDAQ:VIE). All of these stocks' market caps are closest to SHO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position COLB,12,81200,2 DAVA,9,54064,2 SANM,15,146797,-6 VIE,6,291003,0 Average,10.5,143266,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $143 million. That figure was $110 million in SHO's case. Sanmina Corporation (NASDAQ:SANM) is the most popular stock in this table. On the other hand Viela Bio, Inc. (NASDAQ:VIE) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Sunstone Hotel Investors Inc (NYSE:SHO) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.4% in 2020 through June 22nd and still beat the market by 15.9 percentage points. Unfortunately SHO wasn't nearly as popular as these 10 stocks and hedge funds that were betting on SHO were disappointed as the stock returned -1.9% during the second quarter (through June 22nd) 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 in 2020.
Disclosure: None. This article was originally published at Insider Monkey.