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Should You Buy Hudson Ltd. (HUD)?

“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Hudson Ltd. (NYSE:HUD).

Hedge fund interest in Hudson Ltd. (NYSE:HUD) 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 HUD to other stocks including SRC Energy Inc. (NYSE:SRCI), KKR Real Estate Finance Trust Inc. (NYSE:KREF), and NexPoint Residential Trust, Inc. (NYSE:NXRT) to get a better sense of its popularity.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Managemnet

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy  based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to take a look at the fresh hedge fund action encompassing Hudson Ltd. (NYSE:HUD).

Hedge fund activity in Hudson Ltd. (NYSE:HUD)

Heading into the fourth quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in HUD over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Hudson Ltd. (NYSE:HUD) was held by Renaissance Technologies, which reported holding $12.3 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $5.9 million position. Other investors bullish on the company included D E Shaw, Balyasny Asset Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Weld Capital Management allocated the biggest weight to Hudson Ltd. (NYSE:HUD), around 0.13% of its 13F portfolio. Tudor Investment Corp is also relatively very bullish on the stock, dishing out 0.03 percent of its 13F equity portfolio to HUD.

Because Hudson Ltd. (NYSE:HUD) has experienced declining sentiment from the aggregate hedge fund industry, it’s safe to say that there were a few money managers who sold off their positions entirely in the third quarter. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dumped the largest investment of the 750 funds followed by Insider Monkey, comprising an estimated $1.5 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund cut about $0.9 million worth. These moves are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Hudson Ltd. (NYSE:HUD) but similarly valued. We will take a look at SRC Energy Inc. (NYSE:SRCI), KKR Real Estate Finance Trust Inc. (NYSE:KREF), NexPoint Residential Trust, Inc. (NYSE:NXRT), and OFG Bancorp (NYSE:OFG). This group of stocks’ market values are similar to HUD’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SRCI 20 245795 1
KREF 8 52402 -1
NXRT 10 203374 0
OFG 14 65351 -4
Average 13 141731 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $142 million. That figure was $32 million in HUD’s case. SRC Energy Inc. (NYSE:SRCI) is the most popular stock in this table. On the other hand KKR Real Estate Finance Trust Inc. (NYSE:KREF) is the least popular one with only 8 bullish hedge fund positions. Hudson Ltd. (NYSE:HUD) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on HUD as the stock returned 13.4% during the first two months of Q4 and outperformed the market by an even larger margin.

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

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