Hedge Funds Have Never Been This Bullish On Pebblebrook Hotel Trust (PEB)

Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 750 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Pebblebrook Hotel Trust (NYSE:PEB), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Is Pebblebrook Hotel Trust (NYSE:PEB) going to take off soon? Money managers are in an optimistic mood. The number of long hedge fund bets inched up by 3 in recent months. Our calculations also showed that PEB isn’t among the 30 most popular stocks among hedge funds (view the video below). PEB was in 13 hedge funds’ portfolios at the end of the second quarter of 2019. There were 10 hedge funds in our database with PEB holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Dmitry Balyasny

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a glance at the key hedge fund action surrounding Pebblebrook Hotel Trust (NYSE:PEB).

What does smart money think about Pebblebrook Hotel Trust (NYSE:PEB)?

At Q2’s end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 30% from one quarter earlier. By comparison, 11 hedge funds held shares or bullish call options in PEB 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.

No of Hedge Funds with PEB Positions

More specifically, Balyasny Asset Management was the largest shareholder of Pebblebrook Hotel Trust (NYSE:PEB), with a stake worth $34.8 million reported as of the end of March. Trailing Balyasny Asset Management was Zimmer Partners, which amassed a stake valued at $28.2 million. Millennium Management, Echo Street Capital Management, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.

As industrywide interest jumped, some big names were breaking ground themselves. Springbok Capital, managed by Gavin Saitowitz and Cisco J. del Valle, assembled the most valuable position in Pebblebrook Hotel Trust (NYSE:PEB). Springbok Capital had $2.9 million invested in the company at the end of the quarter. Matthew Tewksbury’s Stevens Capital Management also initiated a $0.6 million position during the quarter. The other funds with brand new PEB positions are Steve Cohen’s Point72 Asset Management, Michael Gelband’s ExodusPoint Capital, and Claes Fornell’s CSat Investment Advisory.

Let’s go over hedge fund activity in other stocks similar to Pebblebrook Hotel Trust (NYSE:PEB). These stocks are Ritchie Bros. Auctioneers Incorporated (NYSE:RBA), Q2 Holdings Inc (NYSE:QTWO), Evercore Inc. (NYSE:EVR), and Aerojet Rocketdyne Holdings Inc (NYSE:AJRD). This group of stocks’ market values are similar to PEB’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RBA 12 126049 -3
QTWO 21 113950 6
EVR 26 483070 1
AJRD 18 452430 3
Average 19.25 293875 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $294 million. That figure was $98 million in PEB’s case. Evercore Inc. (NYSE:EVR) is the most popular stock in this table. On the other hand Ritchie Bros. Auctioneers Incorporated (NYSE:RBA) is the least popular one with only 12 bullish hedge fund positions. Pebblebrook Hotel Trust (NYSE:PEB) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately PEB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PEB investors were disappointed as the stock returned 0.1% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.

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