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Did Hedge Funds Make The Right Call On Sunstone Hotel Investors Inc (SHO) ?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Sunstone Hotel Investors Inc (NYSE:SHO) and determine whether the smart money was really smart about this stock.

Is Sunstone Hotel Investors Inc (NYSE:SHO) ready to rally soon? The best stock pickers were in a bearish mood. The number of bullish hedge fund bets were cut by 3 lately. Our calculations also showed that SHO 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). SHO was in 19 hedge funds’ portfolios at the end of the first quarter of 2020. There were 22 hedge funds in our database with SHO holdings at the end of the previous quarter.

Video: 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar 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 we’re going to take a look at the fresh hedge fund action surrounding Sunstone Hotel Investors Inc (NYSE:SHO).

How have hedgies been trading Sunstone Hotel Investors Inc (NYSE:SHO)?

At Q1’s end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from the fourth quarter of 2019. On the other hand, there were a total of 20 hedge funds with a bullish position in SHO a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of Sunstone Hotel Investors Inc (NYSE:SHO), with a stake worth $52.3 million reported as of the end of September. Trailing Renaissance Technologies was Millennium Management, which amassed a stake valued at $12 million. Balyasny Asset Management, Two Sigma Advisors, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Knighthead Capital allocated the biggest weight to Sunstone Hotel Investors Inc (NYSE:SHO), around 1.7% of its 13F portfolio. Balyasny Asset Management is also relatively very bullish on the stock, dishing out 0.13 percent of its 13F equity portfolio to SHO.

Because Sunstone Hotel Investors Inc (NYSE:SHO) has experienced bearish sentiment from hedge fund managers, it’s easy to see that there exists a select few money managers that elected to cut their full holdings last quarter. Interestingly, Greg Poole’s Echo Street Capital Management dropped the biggest stake of the “upper crust” of funds monitored by Insider Monkey, valued at about $30.9 million in stock, and Daniel Johnson’s Gillson Capital was right behind this move, as the fund dumped about $8.2 million worth. These moves are interesting, as total hedge fund interest dropped by 3 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Sunstone Hotel Investors Inc (NYSE:SHO). These stocks are Columbia Banking System Inc (NASDAQ:COLB), Endava plc (NYSE:DAVA), Sanmina Corporation (NASDAQ:SANM), and Viela Bio, Inc. (NASDAQ:VIE). All of these stocks’ market caps are closest to SHO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
COLB 12 81200 2
DAVA 9 54064 2
SANM 15 146797 -6
VIE 6 291003 0
Average 10.5 143266 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $143 million. That figure was $110 million in SHO’s case. Sanmina Corporation (NASDAQ:SANM) is the most popular stock in this table. On the other hand Viela Bio, Inc. (NASDAQ:VIE) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Sunstone Hotel Investors Inc (NYSE:SHO) is more popular among hedge funds. 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 and still beat the market by 17.1 percentage points. Unfortunately SHO wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SHO were disappointed as the stock returned -16.2% since the end of the first 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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Disclosure: None. This article was originally published at Insider Monkey.