Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Is Hyatt Hotels Corporation (NYSE:H) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is Hyatt Hotels Corporation (NYSE:H) worth your attention right now? The smart money is in a pessimistic mood. The number of bullish hedge fund positions decreased by 4 lately. Our calculations also showed that H isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 S&P 500 ETFs by more than 41 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 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 stocks that are in our short portfolio.
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to review the latest hedge fund action encompassing Hyatt Hotels Corporation (NYSE:H).
Hedge fund activity in Hyatt Hotels Corporation (NYSE:H)
At Q4’s end, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the previous quarter. By comparison, 25 hedge funds held shares or bullish call options in H 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.
More specifically, Select Equity Group was the largest shareholder of Hyatt Hotels Corporation (NYSE:H), with a stake worth $482.7 million reported as of the end of September. Trailing Select Equity Group was Long Pond Capital, which amassed a stake valued at $264.1 million. Melvin Capital Management, D E Shaw, and Maverick 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 Long Pond Capital allocated the biggest weight to Hyatt Hotels Corporation (NYSE:H), around 6.74% of its 13F portfolio. MIK Capital is also relatively very bullish on the stock, designating 3.28 percent of its 13F equity portfolio to H.
Judging by the fact that Hyatt Hotels Corporation (NYSE:H) has witnessed declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there was a specific group of hedge funds that slashed their full holdings by the end of the third quarter. At the top of the heap, Greg Poole’s Echo Street Capital Management dumped the largest stake of the “upper crust” of funds monitored by Insider Monkey, worth close to $35.7 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund sold off about $8.8 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 4 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Hyatt Hotels Corporation (NYSE:H) but similarly valued. We will take a look at National Retail Properties, Inc. (NYSE:NNN), US Foods Holding Corp. (NYSE:USFD), Carlisle Companies, Inc. (NYSE:CSL), and Iron Mountain Incorporated (NYSE:IRM). This group of stocks’ market valuations are similar to H’s market valuation.
|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 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $501 million. That figure was $1153 million in H’s case. US Foods Holding Corp. (NYSE:USFD) is the most popular stock in this table. On the other hand Iron Mountain Incorporated (NYSE:IRM) is the least popular one with only 17 bullish hedge fund positions. Hyatt Hotels Corporation (NYSE:H) 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately H wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on H were disappointed as the stock returned -44.6% 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.