Is RLJ Lodging Trust (NYSE:RLJ) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Hedge fund interest in RLJ Lodging Trust (NYSE:RLJ) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare RLJ to other stocks including TreeHouse Foods Inc. (NYSE:THS), Five9 Inc (NASDAQ:FIVN), and Boyd Gaming Corporation (NYSE:BYD) to get a better sense of its popularity. Our calculations also showed that RLJ isn’t among the 30 most popular stocks among hedge funds (view the video below).
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’ 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.
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. Let’s analyze the new hedge fund action surrounding RLJ Lodging Trust (NYSE:RLJ).
What does smart money think about RLJ Lodging Trust (NYSE:RLJ)?
Heading into the third quarter of 2019, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the first quarter of 2019. By comparison, 18 hedge funds held shares or bullish call options in RLJ 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, Citadel Investment Group was the largest shareholder of RLJ Lodging Trust (NYSE:RLJ), with a stake worth $49.5 million reported as of the end of March. Trailing Citadel Investment Group was Fisher Asset Management, which amassed a stake valued at $45 million. AEW Capital Management, Forward Management, and Echo Street Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that RLJ Lodging Trust (NYSE:RLJ) has faced a decline in interest from hedge fund managers, logic holds that there was a specific group of funds that slashed their positions entirely heading into Q3. At the top of the heap, Dmitry Balyasny’s Balyasny Asset Management dumped the largest position of the “upper crust” of funds followed by Insider Monkey, comprising about $16.9 million in stock, and Ward Davis and Brian Agnew’s Caerus Global Investors was right behind this move, as the fund sold off about $7.7 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks similar to RLJ Lodging Trust (NYSE:RLJ). These stocks are TreeHouse Foods Inc. (NYSE:THS), Five9 Inc (NASDAQ:FIVN), Boyd Gaming Corporation (NYSE:BYD), and J&J Snack Foods Corp. (NASDAQ:JJSF). All of these stocks’ market caps resemble RLJ’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| THS | 17 | 142178 | -6 |
| FIVN | 23 | 478688 | -2 |
| BYD | 30 | 350426 | 2 |
| JJSF | 13 | 81274 | -1 |
| Average | 20.75 | 263142 | -1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $263 million. That figure was $180 million in RLJ’s case. Boyd Gaming Corporation (NYSE:BYD) is the most popular stock in this table. On the other hand J&J Snack Foods Corp. (NASDAQ:JJSF) is the least popular one with only 13 bullish hedge fund positions. RLJ Lodging Trust (NYSE:RLJ) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately RLJ wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on RLJ 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 this year.
Disclosure: None. This article was originally published at Insider Monkey.
