We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was The Howard Hughes Corporation (NYSE:HHC).
The Howard Hughes Corporation (NYSE:HHC) has experienced a decrease in enthusiasm from smart money in recent months. Our calculations also showed that HHC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Bill Ackman of Pershing Square
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a look at the new hedge fund action regarding The Howard Hughes Corporation (NYSE:HHC).
Hedge fund activity in The Howard Hughes Corporation (NYSE:HHC)
At the end of the fourth quarter, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from one quarter earlier. By comparison, 26 hedge funds held shares or bullish call options in HHC a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Pershing Square was the largest shareholder of The Howard Hughes Corporation (NYSE:HHC), with a stake worth $278.6 million reported as of the end of September. Trailing Pershing Square was Horizon Asset Management, which amassed a stake valued at $190.7 million. Cardinal Capital, MIC Capital Partners, and Pentwater Capital Management 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 MIC Capital Partners allocated the biggest weight to The Howard Hughes Corporation (NYSE:HHC), around 7.88% of its 13F portfolio. Horizon Asset Management is also relatively very bullish on the stock, setting aside 5.41 percent of its 13F equity portfolio to HHC.
Due to the fact that The Howard Hughes Corporation (NYSE:HHC) has experienced bearish sentiment from the smart money, logic holds that there lies a certain “tier” of hedgies who were dropping their entire stakes last quarter. Interestingly, Matthew Halbower’s Pentwater Capital Management cut the largest position of the 750 funds watched by Insider Monkey, valued at an estimated $17.5 million in stock, and Stephen J. Errico’s Locust Wood Capital Advisers was right behind this move, as the fund dropped about $10.6 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 1 funds last quarter.
Let’s now review hedge fund activity in other stocks similar to The Howard Hughes Corporation (NYSE:HHC). These stocks are Gold Fields Limited (NYSE:GFI), Acuity Brands, Inc. (NYSE:AYI), Churchill Downs Incorporated (NASDAQ:CHDN), and Huntsman Corporation (NYSE:HUN). This group of stocks’ market caps match HHC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GFI | 18 | 374752 | 1 |
| AYI | 29 | 822404 | 1 |
| CHDN | 32 | 599421 | 6 |
| HUN | 39 | 401253 | 8 |
| Average | 29.5 | 549458 | 4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $549 million. That figure was $671 million in HHC’s case. Huntsman Corporation (NYSE:HUN) is the most popular stock in this table. On the other hand Gold Fields Limited (NYSE:GFI) is the least popular one with only 18 bullish hedge fund positions. The Howard Hughes Corporation (NYSE:HHC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately HHC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HHC investors were disappointed as the stock returned -59.1% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
