Hedge Funds Are Dumping Pebblebrook Hotel Trust (PEB)

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 Pebblebrook Hotel Trust (NYSE:PEB) and determine whether the smart money was really smart about this stock.

Pebblebrook Hotel Trust (NYSE:PEB) has experienced a decrease in hedge fund sentiment recently. PEB was in 10 hedge funds’ portfolios at the end of the first quarter of 2020. There were 22 hedge funds in our database with PEB holdings at the end of the previous quarter. Our calculations also showed that PEB 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.

To the average investor there are a large number of metrics investors put to use to assess stocks. A couple of the most innovative metrics are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the best picks of the top fund managers can outclass the S&P 500 by a significant margin (see the details here).

Richard Driehaus of Driehaus Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s review the fresh hedge fund action surrounding Pebblebrook Hotel Trust (NYSE:PEB).

How have hedgies been trading Pebblebrook Hotel Trust (NYSE:PEB)?

At the end of the first quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -55% from one quarter earlier. By comparison, 10 hedge funds held shares or bullish call options in PEB a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

Is PEB A Good Stock To Buy?

The largest stake in Pebblebrook Hotel Trust (NYSE:PEB) was held by HG Vora Capital Management, which reported holding $103.5 million worth of stock at the end of September. It was followed by Long Pond Capital with a $97 million position. Other investors bullish on the company included Renaissance Technologies, D E Shaw, and Tudor Investment Corp. In terms of the portfolio weights assigned to each position HG Vora Capital Management allocated the biggest weight to Pebblebrook Hotel Trust (NYSE:PEB), around 10.09% of its 13F portfolio. Long Pond Capital is also relatively very bullish on the stock, dishing out 4.97 percent of its 13F equity portfolio to PEB.

Due to the fact that Pebblebrook Hotel Trust (NYSE:PEB) has faced a decline in interest from the aggregate hedge fund industry, logic holds that there is a sect of money managers that slashed their positions entirely by the end of the first quarter. Intriguingly, Greg Poole’s Echo Street Capital Management cut the largest investment of the 750 funds watched by Insider Monkey, totaling about $19.9 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund dumped about $7.1 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 12 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks similar to Pebblebrook Hotel Trust (NYSE:PEB). We will take a look at Hillenbrand, Inc. (NYSE:HI), Worthington Industries, Inc. (NYSE:WOR), Insmed Incorporated (NASDAQ:INSM), and Forward Air Corporation (NASDAQ:FWRD). This group of stocks’ market valuations resemble PEB’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HI 14 124446 -10
WOR 14 33700 -11
INSM 20 358370 -5
FWRD 17 78795 -3
Average 16.25 148828 -7.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $149 million. That figure was $224 million in PEB’s case. Insmed Incorporated (NASDAQ:INSM) is the most popular stock in this table. On the other hand Hillenbrand, Inc. (NYSE:HI) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Pebblebrook Hotel Trust (NYSE:PEB) is even less popular than HI. Hedge funds clearly dropped the ball on PEB as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on PEB as the stock returned 25.5% in the second quarter and outperformed the market by an even larger margin.

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