While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the second quarter and hedging or reducing many of their long positions. Some fund managers like this one are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Playa Hotels & Resorts N.V. (NASDAQ:PLYA).
Playa Hotels & Resorts N.V. (NASDAQ:PLYA) was in 18 hedge funds' portfolios at the end of the second quarter of 2019. PLYA investors should be aware of a decrease in hedge fund interest recently. There were 19 hedge funds in our database with PLYA positions at the end of the previous quarter. Our calculations also showed that PLYA isn't among the 30 most popular stocks among hedge funds (see the video below). 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' 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 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 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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a look at the latest hedge fund action surrounding Playa Hotels & Resorts N.V. (NASDAQ:PLYA).
Hedge fund activity in Playa Hotels & Resorts N.V. (NASDAQ:PLYA)
At the end of the second quarter, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PLYA over the last 16 quarters. With hedge funds' capital changing hands, there exists an "upper tier" of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
More specifically, Farallon Capital was the largest shareholder of Playa Hotels & Resorts N.V. (NASDAQ:PLYA), with a stake worth $236 million reported as of the end of March. Trailing Farallon Capital was Empyrean Capital Partners, which amassed a stake valued at $37.8 million. HG Vora Capital Management, Marlowe Partners, and Governors Lane were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Playa Hotels & Resorts N.V. (NASDAQ:PLYA) has faced a decline in interest from hedge fund managers, we can see that there lies a certain "tier" of hedgies who were dropping their positions entirely in the second quarter. At the top of the heap, Steven Boyd's Armistice Capital cut the largest stake of the "upper crust" of funds followed by Insider Monkey, comprising about $27.3 million in stock, and John Overdeck and David Siegel's Two Sigma Advisors was right behind this move, as the fund dumped about $0.3 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 1 funds in the second quarter.
Let's check out hedge fund activity in other stocks similar to Playa Hotels & Resorts N.V. (NASDAQ:PLYA). We will take a look at CSW Industrials, Inc. (NASDAQ:CSWI), The Chefs Warehouse, Inc (NASDAQ:CHEF), Chase Corporation (NYSEAMEX:CCF), and NV5 Global, Inc. (NASDAQ:NVEE). This group of stocks' market values resemble PLYA's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CSWI,19,61434,0 CHEF,9,54993,-1 CCF,8,84745,-1 NVEE,12,30332,2 Average,12,57876,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $58 million. That figure was $406 million in PLYA's case. CSW Industrials, Inc. (NASDAQ:CSWI) is the most popular stock in this table. On the other hand Chase Corporation (NYSEAMEX:CCF) is the least popular one with only 8 bullish hedge fund positions. Playa Hotels & Resorts N.V. (NASDAQ:PLYA) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately PLYA wasn't nearly as popular as these 20 stocks and hedge funds that were betting on PLYA were disappointed as the stock returned 1.6% during the third 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.