Hedge funds are known to underperform the bull markets but that's not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Total Return Index ETFs returned 31.2% last year. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.3% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds' consensus stock picks rather than directly investing in hedge funds. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Host Hotels and Resorts Inc (NYSE:HST).
Is Host Hotels and Resorts Inc (NYSE:HST) worth your attention right now? Prominent investors are turning less bullish. The number of long hedge fund bets went down 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 at the end of this article for Q2 rankings). HST was in 27 hedge funds' portfolios at the end of the third quarter of 2019. There were 28 hedge funds in our database with HST positions at the end of the previous quarter.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_26345" align="aligncenter" width="600"] Paul Singer of Elliott 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 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. Keeping this in mind we're going to review the fresh hedge fund action regarding Host Hotels and Resorts Inc (NYSE:HST).
What does smart money think about Host Hotels and Resorts Inc (NYSE:HST)?
At the end of the third quarter, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the previous quarter. By comparison, 21 hedge funds held shares or bullish call options in HST a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, GLG Partners, managed by Noam Gottesman, holds the largest position in Host Hotels and Resorts Inc (NYSE:HST). GLG Partners has a $105.5 million position in the stock, comprising 0.4% of its 13F portfolio. Sitting at the No. 2 spot is Long Pond Capital, led by John Khoury, holding a $88.6 million position; the fund has 2.3% of its 13F portfolio invested in the stock. Other peers that are bullish include Greg Poole's Echo Street Capital Management, David E. Shaw's 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 13F portfolio. Echo Street Capital Management is also relatively very bullish on the stock, dishing out 1.24 percent of its 13F equity portfolio to HST.
Judging by the fact that Host Hotels and Resorts Inc (NYSE:HST) has experienced falling interest from hedge fund managers, it's safe to say that there is a sect of money managers who were dropping their full holdings heading into Q4. At the top of the heap, Jeffrey Furber's AEW Capital Management said goodbye to the largest investment of all the hedgies tracked by Insider Monkey, valued at an estimated $84.8 million in stock, and Stuart J. Zimmer's Zimmer Partners was right behind this move, as the fund dropped about $5.5 million worth. These moves are interesting, as aggregate hedge fund interest fell by 1 funds heading into Q4.
Let's now take a look at 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 match 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 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 16.6% in 2019 and trailed 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 65 percent of these stocks outperformed the market in 2019. 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.