Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example in the first 9 months of this year through September 30th the Standard and Poor’s 500 Index returned approximately 20% (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like trivago N.V. (NASDAQ:TRVG).
Is trivago N.V. (NASDAQ:TRVG) going to take off soon? Money managers are in a pessimistic mood. The number of long hedge fund bets went down by 2 recently. Our calculations also showed that TRVG isn’t among the 30 most popular stocks among hedge funds (see the video below). TRVG was in 9 hedge funds’ portfolios at the end of the second quarter of 2019. There were 11 hedge funds in our database with TRVG positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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 recent hedge fund action encompassing trivago N.V. (NASDAQ:TRVG).
What have hedge funds been doing with trivago N.V. (NASDAQ:TRVG)?
At the end of the second quarter, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TRVG over the last 16 quarters. 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, PAR Capital Management held the most valuable stake in trivago N.V. (NASDAQ:TRVG), which was worth $87 million at the end of the second quarter. On the second spot was Altimeter Capital Management which amassed $22 million worth of shares. Moreover, Greenhouse Funds, 683 Capital Partners, and Millennium Management were also bullish on trivago N.V. (NASDAQ:TRVG), allocating a large percentage of their portfolios to this stock.
Seeing as trivago N.V. (NASDAQ:TRVG) has witnessed a decline in interest from hedge fund managers, it’s safe to say that there were a few money managers who were dropping their positions entirely by the end of the second quarter. Interestingly, Ken Griffin’s Citadel Investment Group cut the biggest position of all the hedgies monitored by Insider Monkey, totaling an estimated $0.1 million in stock. D. E. Shaw’s fund, D E Shaw, also said goodbye to its stock, about $0.1 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 2 funds by the end of the second quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as trivago N.V. (NASDAQ:TRVG) but similarly valued. These stocks are TPG RE Finance Trust, Inc. (NYSE:TRTX), Bed Bath & Beyond Inc. (NASDAQ:BBBY), Bloom Energy Corporation (NYSE:BE), and Cray Inc. (NASDAQ:CRAY). This group of stocks’ market values are similar to TRVG’s market value.
|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 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $134 million. That figure was $149 million in TRVG’s case. Cray Inc. (NASDAQ:CRAY) is the most popular stock in this table. On the other hand TPG RE Finance Trust, Inc. (NYSE:TRTX) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks trivago N.V. (NASDAQ:TRVG) is even less popular than TRTX. Hedge funds dodged a bullet by taking a bearish stance towards TRVG. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately TRVG wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); TRVG investors were disappointed as the stock returned -2.4% 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.