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Sunstone Hotel Investors Inc (NYSE:SHO): Hedge Funds Are Bullish and Insiders Are Bearish, What Should You Do?

Sunstone Hotel Investors Inc (NYSE:SHO) was in 16 hedge funds’ portfolio at the end of December. SHO investors should be aware of an increase in hedge fund interest recently. There were 15 hedge funds in our database with SHO holdings at the end of the previous quarter.

Sunstone Hotel Investors Inc (NYSE:SHO)

To most shareholders, hedge funds are perceived as underperforming, outdated financial vehicles of years past. While there are over 8000 funds with their doors open at the moment, we look at the leaders of this group, about 450 funds. It is widely believed that this group controls most of all hedge funds’ total asset base, and by paying attention to their top stock picks, we have brought to light a few investment strategies that have historically outpaced the S&P 500 index. Our small-cap hedge fund strategy beat the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have outperformed the S&P 500 index by 25 percentage points in 6.5 month (see the details here).

Equally as beneficial, positive insider trading activity is a second way to break down the world of equities. Obviously, there are a number of reasons for a bullish insider to cut shares of his or her company, but only one, very simple reason why they would buy. Plenty of empirical studies have demonstrated the market-beating potential of this method if “monkeys” understand what to do (learn more here).

With these “truths” under our belt, let’s take a gander at the recent action regarding Sunstone Hotel Investors Inc (NYSE:SHO).

Hedge fund activity in Sunstone Hotel Investors Inc (NYSE:SHO)

At the end of the fourth quarter, a total of 16 of the hedge funds we track held long positions in this stock, a change of 7% from the third quarter. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were boosting their stakes substantially.

Of the funds we track, Ken Heebner’s Capital Growth Management had the most valuable position in Sunstone Hotel Investors Inc (NYSE:SHO), worth close to $55 million, comprising 1.4% of its total 13F portfolio. Sitting at the No. 2 spot is James H. Litinsk of JHL Capital Group, with a $41 million position; the fund has 6% of its 13F portfolio invested in the stock. Remaining peers with similar optimism include Israel Englander’s Millennium Management, J. Alan Reid, Jr.’s Forward Management and Glenn Fuhrman and John Phelan’s MSD Capital.

With a general bullishness amongst the heavyweights, key hedge funds have jumped into Sunstone Hotel Investors Inc (NYSE:SHO) headfirst. Whitebox Advisors, managed by Andy Redleaf, initiated the most valuable position in Sunstone Hotel Investors Inc (NYSE:SHO). Whitebox Advisors had 1 million invested in the company at the end of the quarter.

Insider trading activity in Sunstone Hotel Investors Inc (NYSE:SHO)

Insider trading activity, especially when it’s bullish, is particularly usable when the company we’re looking at has experienced transactions within the past 180 days. Over the latest half-year time period, Sunstone Hotel Investors Inc (NYSE:SHO) has seen zero unique insiders purchasing, and 1 insider sales (see the details of insider trades here).

With the returns shown by our tactics, retail investors should always watch hedge fund and insider trading sentiment, and Sunstone Hotel Investors Inc (NYSE:SHO) is no exception.

Click here to learn more about Insider Monkey’s Hedge Fund Newsletter

Insider Monkey’s small-cap strategy returned 29.2% between September 2012 and February 2013 versus 8.7% for the S&P 500 index. Try it now by clicking the link above.

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