Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to take a gander at the key hedge fund action regarding Huazhu Group, Limited (NASDAQ:HTHT).
Hedge fund activity in Huazhu Group, Limited (NASDAQ:HTHT)
At Q1's end, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in HTHT over the last 15 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Yiheng Capital was the largest shareholder of Huazhu Group, Limited (NASDAQ:HTHT), with a stake worth $113.7 million reported as of the end of March. Trailing Yiheng Capital was Platinum Asset Management, which amassed a stake valued at $46.2 million. AQR Capital Management, Fisher Asset Management, and Prescott Group Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Huazhu Group, Limited (NASDAQ:HTHT) has witnessed falling interest from the smart money, it's easy to see that there is a sect of hedgies that decided to sell off their full holdings by the end of the third quarter. Interestingly, Charles Clough's Clough Capital Partners sold off the biggest position of all the hedgies watched by Insider Monkey, totaling about $7.7 million in stock. Gavin Saitowitz and Cisco J. del Valle's fund, Springbok Capital, also dumped its stock, about $6.4 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds by the end of the third quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Huazhu Group, Limited (NASDAQ:HTHT) but similarly valued. These stocks are BanColombia S.A. (NYSE:CIB), Advance Auto Parts, Inc. (NYSE:AAP), Universal Health Services, Inc. (NYSE:UHS), and Quest Diagnostics Incorporated (NYSE:DGX). All of these stocks' market caps are closest to HTHT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CIB,11,154486,5 AAP,47,2297068,-4 UHS,29,761401,1 DGX,22,303617,-4 Average,27.25,879143,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.25 hedge funds with bullish positions and the average amount invested in these stocks was $879 million. That figure was $196 million in HTHT's case. Advance Auto Parts, Inc. (NYSE:AAP) is the most popular stock in this table. On the other hand BanColombia S.A. (NYSE:CIB) is the least popular one with only 11 bullish hedge fund positions. Huazhu Group, Limited (NASDAQ:HTHT) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately HTHT wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HTHT investors were disappointed as the stock returned -21.7% during the same time period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.