Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards InterContinental Hotels Group PLC (NYSE:IHG).
InterContinental Hotels Group PLC (NYSE:IHG) was in 7 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 12. IHG shareholders have witnessed an increase in hedge fund interest recently. There were 5 hedge funds in our database with IHG holdings at the end of June. Our calculations also showed that IHG isn’t among the 30 most popular stocks among hedge funds (click for Q3 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 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 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. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. You can subscribe to our free daily newsletter on our website. Keeping this in mind let’s take a gander at the latest hedge fund action encompassing InterContinental Hotels Group PLC (NYSE:IHG).
Hedge fund activity in InterContinental Hotels Group PLC (NYSE:IHG)
At Q3’s end, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 40% from the second quarter of 2020. By comparison, 7 hedge funds held shares or bullish call options in IHG a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Citadel Investment Group held the most valuable stake in InterContinental Hotels Group PLC (NYSE:IHG), which was worth $5 million at the end of the third quarter. On the second spot was D E Shaw which amassed $2.8 million worth of shares. Echo Street Capital Management, Two Sigma Advisors, and Arrowstreet Capital 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 Echo Street Capital Management allocated the biggest weight to InterContinental Hotels Group PLC (NYSE:IHG), around 0.02% of its 13F portfolio. Samlyn Capital is also relatively very bullish on the stock, dishing out 0.0046 percent of its 13F equity portfolio to IHG.
As industrywide interest jumped, key hedge funds have been driving this bullishness. D E Shaw, managed by D. E. Shaw, assembled the largest position in InterContinental Hotels Group PLC (NYSE:IHG). D E Shaw had $2.8 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $0.5 million position during the quarter. The following funds were also among the new IHG investors: Israel Englander’s Millennium Management and Robert Pohly’s Samlyn Capital.
Let’s go over hedge fund activity in other stocks similar to InterContinental Hotels Group PLC (NYSE:IHG). We will take a look at Loews Corporation (NYSE:L), DENTSPLY SIRONA Inc. (NASDAQ:XRAY), Bio-Techne Corporation (NASDAQ:TECH), Albemarle Corporation (NYSE:ALB), Ally Financial Inc (NYSE:ALLY), Nuance Communications Inc. (NASDAQ:NUAN), and Shaw Communications Inc (NYSE:SJR). All of these stocks’ market caps match IHG’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.1 hedge funds with bullish positions and the average amount invested in these stocks was $935 million. That figure was $11 million in IHG’s case. Ally Financial Inc (NYSE:ALLY) is the most popular stock in this table. On the other hand Shaw Communications Inc (NYSE:SJR) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks InterContinental Hotels Group PLC (NYSE:IHG) is even less popular than SJR. Our overall hedge fund sentiment score for IHG is 24.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds clearly dropped the ball on IHG as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. A small number of hedge funds were also right about betting on IHG as the stock returned 21% since Q3 (through December 2nd) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.