Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Service Properties Trust (NASDAQ:SVC) based on that data and determine whether they were really smart about the stock.
Service Properties Trust (NASDAQ:SVC) was in 21 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 23. SVC investors should pay attention to a decrease in activity from the world’s largest hedge funds in recent months. There were 23 hedge funds in our database with SVC holdings at the end of March. Our calculations also showed that SVC 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.
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 S&P 500 ETFs by 58 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.
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 precious metals prices. So, we are checking out this junior gold mining stock. We are also checking out this lithium company which could benefit from the electric car adoption. 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. Keeping this in mind let’s take a peek at the recent hedge fund action encompassing Service Properties Trust (NASDAQ:SVC).
What does smart money think about Service Properties Trust (NASDAQ:SVC)?
Heading into the third quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the first quarter of 2020. On the other hand, there were a total of 13 hedge funds with a bullish position in SVC a year ago. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Israel Englander’s Millennium Management has the most valuable position in Service Properties Trust (NASDAQ:SVC), worth close to $19.1 million, accounting for less than 0.1%% of its total 13F portfolio. The second largest stake is held by Pzena Investment Management, led by Richard S. Pzena, holding a $7.6 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other peers that hold long positions encompass Renaissance Technologies, Cliff Asness’s AQR Capital Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Redwood Capital Management allocated the biggest weight to Service Properties Trust (NASDAQ:SVC), around 0.26% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, dishing out 0.17 percent of its 13F equity portfolio to SVC.
Judging by the fact that Service Properties Trust (NASDAQ:SVC) has witnessed declining sentiment from the aggregate hedge fund industry, it’s safe to say that there were a few money managers that decided to sell off their entire stakes by the end of the second quarter. At the top of the heap, Dmitry Balyasny’s Balyasny Asset Management sold off the largest investment of the “upper crust” of funds watched by Insider Monkey, valued at an estimated $6.6 million in stock, and Kenneth A. Moffet’s Hourglass Capital was right behind this move, as the fund dropped about $1.5 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 2 funds by the end of the second quarter.
Let’s check out 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 Domtar Corporation (NYSE:UFS), Kaiser Aluminum Corp. (NASDAQ:KALU), Carpenter Technology Corporation (NYSE:CRS), Sandy Spring Bancorp Inc. (NASDAQ:SASR), Seabridge Gold, Inc. (NYSE:SA), Methode Electronics Inc. (NYSE:MEI), and SeaWorld Entertainment Inc (NYSE:SEAS). This group of stocks’ market values resemble SVC’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 16.6 hedge funds with bullish positions and the average amount invested in these stocks was $160 million. That figure was $54 million in SVC’s case. Domtar Corporation (NYSE:UFS) is the most popular stock in this table. On the other hand Seabridge Gold, Inc. (NYSE:SA) 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 64.6. 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 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 third quarter and still beat the market by 19.3 percentage points. Hedge funds were also right about betting on SVC as the stock returned 12.3% during Q3 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.