Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant out-performance. These stocks have been on a tear since the end of June, outperforming large-cap index funds by more than 10 percentage points. That’s why we pay special attention to hedge fund activity in these stocks.
LaSalle Hotel Properties (NYSE:LHO) has experienced a decrease in hedge fund sentiment of late. There were 14 hedge funds in our database with LHO positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Oceaneering International (NYSE:OII), NetScout Systems, Inc. (NASDAQ:NTCT), and Coherent, Inc. (NASDAQ:COHR) to gather more data points.
Follow Lasalle Hotel Properties (NYSE:LHO)
Follow Lasalle Hotel Properties (NYSE:LHO)
We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.
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Keeping this in mind, let’s take a glance at the recent action regarding LaSalle Hotel Properties (NYSE:LHO).
How are hedge funds trading LaSalle Hotel Properties (NYSE:LHO)?
Heading into the fourth quarter of 2016, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the second quarter of 2016. By comparison, 10 hedge funds held shares or bullish call options in LHO heading into this year. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Balyasny Asset Management, led by Dmitry Balyasny, holds the number one position in LaSalle Hotel Properties (NYSE:LHO). Balyasny Asset Management has a $5.9 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Sitting at the No. 2 spot is Two Sigma Advisors, led by John Overdeck and David Siegel, which holds a $3.2 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other professional money managers with similar optimism encompass Michael Swotes’s Castle Ridge Investment Management, Israel Englander’s Millennium Management and Cliff Asness’s AQR Capital Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Seeing as LaSalle Hotel Properties (NYSE:LHO) has experienced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of funds who were dropping their full holdings by the end of the third quarter. Intriguingly, Parag Vora’s HG Vora Capital Management said goodbye to the largest investment of the “upper crust” of funds watched by Insider Monkey, valued at about $29.5 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also cut its call options, about $1.2 million worth.
Let’s also examine hedge fund activity in other stocks similar to LaSalle Hotel Properties (NYSE:LHO). We will take a look at Oceaneering International (NYSE:OII), NetScout Systems, Inc. (NASDAQ:NTCT), Coherent, Inc. (NASDAQ:COHR), and Pan American Silver Corp. (USA) (NASDAQ:PAAS). This group of stocks’ market valuations match LHO’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| OII | 22 | 165804 | -10 |
| NTCT | 20 | 331263 | -3 |
| COHR | 23 | 174462 | 1 |
| PAAS | 20 | 195961 | 3 |
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $217 million. That figure was $22 million in LHO’s case. Coherent, Inc. (NASDAQ:COHR) is the most popular stock in this table. On the other hand NetScout Systems, Inc. (NASDAQ:NTCT) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks LaSalle Hotel Properties (NYSE:LHO) is even less popular than NTCT. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
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Disclosure: None
