Did Hedge Funds Make The Right Call On RLJ Lodging Trust (RLJ) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards RLJ Lodging Trust (NYSE:RLJ) at the end of the first quarter and determine whether the smart money was really smart about this stock.

RLJ Lodging Trust (NYSE:RLJ) was in 20 hedge funds’ portfolios at the end of March. RLJ shareholders have witnessed an increase in enthusiasm from smart money of late. There were 17 hedge funds in our database with RLJ holdings at the end of the previous quarter. Our calculations also showed that RLJ isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 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.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s view the key hedge fund action surrounding RLJ Lodging Trust (NYSE:RLJ).

Hedge fund activity in RLJ Lodging Trust (NYSE:RLJ)

At the end of the first quarter, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from the previous quarter. On the other hand, there were a total of 21 hedge funds with a bullish position in RLJ a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in RLJ Lodging Trust (NYSE:RLJ) was held by Fisher Asset Management, which reported holding $16 million worth of stock at the end of September. It was followed by Forward Management with a $9.8 million position. Other investors bullish on the company included Balyasny Asset Management, Arrowstreet Capital, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Forward Management allocated the biggest weight to RLJ Lodging Trust (NYSE:RLJ), around 1.91% of its 13F portfolio. Oasis Management is also relatively very bullish on the stock, setting aside 0.79 percent of its 13F equity portfolio to RLJ.

As aggregate interest increased, some big names were leading the bulls’ herd. Balyasny Asset Management, managed by Dmitry Balyasny, initiated the largest position in RLJ Lodging Trust (NYSE:RLJ). Balyasny Asset Management had $9.1 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $5.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Matthew Hulsizer’s PEAK6 Capital Management, Eli Samaha’s Madison Avenue Partners, and David Brown’s Hawk Ridge Management.

Let’s also examine hedge fund activity in other stocks similar to RLJ Lodging Trust (NYSE:RLJ). These stocks are Stitch Fix, Inc. (NASDAQ:SFIX), Sunoco LP (NYSE:SUN), Yelp Inc (NYSE:YELP), and Compass Minerals International, Inc. (NYSE:CMP). This group of stocks’ market valuations match RLJ’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $101 million. That figure was $56 million in RLJ’s case. Yelp Inc (NYSE:YELP) is the most popular stock in this table. On the other hand Sunoco LP (NYSE:SUN) is the least popular one with only 4 bullish hedge fund positions. RLJ Lodging Trust (NYSE:RLJ) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 18.6% in 2020 through July 27th but beat the market by 17.1 percentage points. Unfortunately RLJ wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on RLJ were disappointed as the stock returned 0.8% 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 10 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.