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Were Hedge Funds Right About Souring On RLJ Lodging Trust (RLJ)?

RLJ Lodging Trust (NYSE:RLJ) was in 21 hedge funds’ portfolios at the end of March. RLJ investors should pay attention to a decrease in support from the world’s most elite money managers in recent months. There were 25 hedge funds in our database with RLJ positions at the end of the previous quarter. Our calculations also showed that RLJ isn’t among the 30 most popular stocks among hedge funds.

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 has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Dmitry Balyasny

We’re going to check out the recent hedge fund action regarding RLJ Lodging Trust (NYSE:RLJ).

How have hedgies been trading RLJ Lodging Trust (NYSE:RLJ)?

At Q1’s end, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -16% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in RLJ a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

RLJ_jun2019

The largest stake in RLJ Lodging Trust (NYSE:RLJ) was held by Fisher Asset Management, which reported holding $45.6 million worth of stock at the end of March. It was followed by Citadel Investment Group with a $40.8 million position. Other investors bullish on the company included AEW Capital Management, Balyasny Asset Management, and Forward Management.

Seeing as RLJ Lodging Trust (NYSE:RLJ) has faced falling interest from the aggregate hedge fund industry, we can see that there exists a select few funds that slashed their entire stakes last quarter. At the top of the heap, Derek C. Schrier’s Indaba Capital Management dropped the biggest stake of all the hedgies tracked by Insider Monkey, comprising close to $21.5 million in stock, and Alexander Mitchell’s Scopus Asset Management was right behind this move, as the fund sold off about $6.7 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 4 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to RLJ Lodging Trust (NYSE:RLJ). These stocks are Amicus Therapeutics, Inc. (NASDAQ:FOLD), Tegna Inc (NYSE:TGNA), Boyd Gaming Corporation (NYSE:BYD), and Moog Inc (NYSE:MOG). This group of stocks’ market caps resemble RLJ’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FOLD 30 1046575 4
TGNA 26 470360 4
BYD 28 404116 -2
MOG 17 90968 4
Average 25.25 503005 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $503 million. That figure was $193 million in RLJ’s case. Amicus Therapeutics, Inc. (NASDAQ:FOLD) is the most popular stock in this table. On the other hand Moog Inc (NYSE:MOG) is the least popular one with only 17 bullish hedge fund positions. RLJ Lodging Trust (NYSE:RLJ) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately RLJ wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); RLJ investors were disappointed as the stock returned 3.2% 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 13 of these stocks already outperformed the market so far in Q2.

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

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