Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren't very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds' top 20 stock picks easily bested the broader market, at 37.4% compared to 27.5%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn't perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
Is Hersha Hospitality Trust (NYSE:HT) a buy right now? The smart money is in a bullish mood. The number of long hedge fund bets increased by 1 in recent months. Our calculations also showed that HT isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). HT was in 13 hedge funds' portfolios at the end of September. There were 12 hedge funds in our database with HT holdings at the end of the previous quarter. Video: Click the image to 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' 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_27480" align="alignnone" width="600"] Israel Englander of Millennium 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. 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 also rely on the best performing hedge funds' buy/sell signals. Let's take a peek at the latest hedge fund action regarding Hersha Hospitality Trust (NYSE:HT).
How are hedge funds trading Hersha Hospitality Trust (NYSE:HT)?
At the end of the third quarter, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from the second quarter of 2019. On the other hand, there were a total of 8 hedge funds with a bullish position in HT a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Hersha Hospitality Trust (NYSE:HT) was held by Millennium Management, which reported holding $4.1 million worth of stock at the end of September. It was followed by GLG Partners with a $2.5 million position. Other investors bullish on the company included Arrowstreet Capital, Renaissance Technologies, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Tudor Investment Corp allocated the biggest weight to Hersha Hospitality Trust (NYSE:HT), around 0.03% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, dishing out 0.03 percent of its 13F equity portfolio to HT.
As one would reasonably expect, specific money managers have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the most outsized position in Hersha Hospitality Trust (NYSE:HT). Arrowstreet Capital had $1.9 million invested in the company at the end of the quarter. David E. Shaw's D E Shaw also made a $0.7 million investment in the stock during the quarter. The only other fund with a new position in the stock is Paul Marshall and Ian Wace's Marshall Wace.
Let's now take a look at hedge fund activity in other stocks similar to Hersha Hospitality Trust (NYSE:HT). These stocks are CorePoint Lodging Inc. (NYSE:CPLG), MeiraGTx Holdings plc (NASDAQ:MGTX), National Energy Services Reunited Corp. (NASDAQ:NESR), and CryoPort, Inc. (NASDAQ:CYRX). This group of stocks' market valuations are similar to HT's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CPLG,10,32667,2 MGTX,13,191351,4 NESR,9,24826,2 CYRX,10,28222,-1 Average,10.5,69267,1.75 [/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 $69 million. That figure was $18 million in HT's case. MeiraGTx Holdings plc (NASDAQ:MGTX) is the most popular stock in this table. On the other hand National Energy Services Reunited Corp. (NASDAQ:NESR) is the least popular one with only 9 bullish hedge fund positions. Hersha Hospitality Trust (NYSE:HT) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately HT wasn't nearly as popular as these 20 stocks and hedge funds that were betting on HT were disappointed as the stock returned -4.7% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.