RLJ Lodging Trust (RLJ): Hedge Funds Taking Some Chips Off The Table

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards RLJ Lodging Trust (NYSE:RLJ) at the end of the second quarter and determine whether the smart money was really smart about this stock.

RLJ Lodging Trust (NYSE:RLJ) was in 18 hedge funds’ portfolios at the end of June. The all time high for this statistics is 25. RLJ has seen a decrease in support from the world’s most elite money managers of late. There were 20 hedge funds in our database with RLJ positions at the end of the first quarter. Our calculations also showed that RLJ isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are dozens of gauges stock traders employ to evaluate stocks. A duo of the most underrated gauges are hedge fund and insider trading moves. Our experts have shown that, historically, those who follow the top picks of the top investment managers can outpace the market by a healthy margin (see the details here).

David Brown Hawk Ridge Partners

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 are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. With all of this in mind let’s take a gander at the fresh hedge fund action surrounding RLJ Lodging Trust (NYSE:RLJ).

How are hedge funds trading RLJ Lodging Trust (NYSE:RLJ)?

At Q2’s end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards RLJ over the last 20 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.

Is RLJ A Good Stock To Buy?

More specifically, Fisher Asset Management was the largest shareholder of RLJ Lodging Trust (NYSE:RLJ), with a stake worth $18.9 million reported as of the end of September. Trailing Fisher Asset Management was Forward Management, which amassed a stake valued at $12.3 million. Millennium Management, Newtyn Management, and Madison Avenue Partners 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 LDR Capital allocated the biggest weight to RLJ Lodging Trust (NYSE:RLJ), around 5.17% of its 13F portfolio. Newtyn Management is also relatively very bullish on the stock, setting aside 3.72 percent of its 13F equity portfolio to RLJ.

Since RLJ Lodging Trust (NYSE:RLJ) has witnessed declining sentiment from hedge fund managers, it’s easy to see that there is a sect of fund managers that elected to cut their positions entirely heading into Q3. At the top of the heap, Dmitry Balyasny’s Balyasny Asset Management cut the biggest investment of all the hedgies tracked by Insider Monkey, totaling an estimated $9.1 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also sold off its stock, about $5.3 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 2 funds heading into Q3.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as RLJ Lodging Trust (NYSE:RLJ) but similarly valued. We will take a look at Cedar Fair, L.P. (NYSE:FUN), NuStar Energy L.P. (NYSE:NS), Capitol Federal Financial, Inc. (NASDAQ:CFFN), Pretium Resources Inc (NYSE:PVG), Texas Capital Bancshares Inc (NASDAQ:TCBI), Gibraltar Industries Inc (NASDAQ:ROCK), and Trustmark Corp (NASDAQ:TRMK). This group of stocks’ market values match RLJ’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FUN 14 53964 4
NS 5 28044 1
CFFN 11 98587 0
PVG 23 121987 -2
TCBI 21 110702 2
ROCK 14 111597 -5
TRMK 17 26322 4
Average 15 78743 0.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $79 million. That figure was $76 million in RLJ’s case. Pretium Resources Inc (NYSE:PVG) is the most popular stock in this table. On the other hand NuStar Energy L.P. (NYSE:NS) is the least popular one with only 5 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. Our overall hedge fund sentiment score for RLJ is 60.7. 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. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately RLJ wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on RLJ were disappointed as the stock returned -8.2% in Q3 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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