Is Service Properties Trust (NASDAQ:SVC) 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 SVC a good stock to buy now? The smart money was in a bearish mood. The number of long hedge fund positions went down by 6 recently. Service Properties Trust (NASDAQ:SVC) was in 15 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 23. Our calculations also showed that SVC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 21 hedge funds in our database with SVC holdings at the end of June.
Video: 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 S&P 500 ETFs by more than 66 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to check out the new hedge fund action surrounding Service Properties Trust (NASDAQ:SVC).
Do Hedge Funds Think SVC Is A Good Stock To Buy Now?
At Q3’s end, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from the previous quarter. On the other hand, there were a total of 15 hedge funds with a bullish position in SVC a year ago. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
The largest stake in Service Properties Trust (NASDAQ:SVC) was held by Redwood Capital Management, which reported holding $55.1 million worth of stock at the end of September. It was followed by AQR Capital Management with a $8.9 million position. Other investors bullish on the company included Millennium Management, D E Shaw, and GLG Partners. In terms of the portfolio weights assigned to each position Redwood Capital Management allocated the biggest weight to Service Properties Trust (NASDAQ:SVC), around 4.19% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, setting aside 0.25 percent of its 13F equity portfolio to SVC.
Judging by the fact that Service Properties Trust (NASDAQ:SVC) has witnessed bearish sentiment from hedge fund managers, logic holds that there was a specific group of funds who were dropping their positions entirely by the end of the third quarter. It’s worth mentioning that Richard S. Pzena’s Pzena Investment Management said goodbye to the largest investment of all the hedgies monitored by Insider Monkey, worth close to $7.6 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund dropped about $2.5 million worth. These moves are important to note, as aggregate hedge fund interest fell by 6 funds by the end of the third quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Service Properties Trust (NASDAQ:SVC) but similarly valued. We will take a look at Zentalis Pharmaceuticals, Inc. (NASDAQ:ZNTL), Whiting Petroleum Corporation (NYSE:WLL), Magnolia Oil & Gas Corporation (NYSE:MGY), Core-Mark Holding Company, Inc. (NASDAQ:CORE), Broadmark Realty Capital Inc. (NYSE:BRMK), Mesa Laboratories, Inc. (NASDAQ:MLAB), and Nurix Therapeutics, Inc. (NASDAQ:NRIX). This group of stocks’ market valuations resemble SVC’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 14.6 hedge funds with bullish positions and the average amount invested in these stocks was $186 million. That figure was $79 million in SVC’s case. Core-Mark Holding Company, Inc. (NASDAQ:CORE) is the most popular stock in this table. On the other hand Mesa Laboratories, Inc. (NASDAQ:MLAB) is the least popular one with only 8 bullish hedge fund positions. Service Properties Trust (NASDAQ:SVC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SVC is 47.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on SVC as the stock returned 44.4% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.