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Were Hedge Funds Right About Chatham Lodging Trust (CLDT)?

“Market volatility has picked up again over the past few weeks. Headlines highlight risks regarding interest rates, the Fed, China, house prices, auto sales, trade wars, and more. Uncertainty abounds. But doesn’t it always? I have no view on whether the recent volatility will continue for a while, or whether the market will be back at all-time highs before we know it. I remain focused on preserving and growing our capital, and continue to believe that the best way to do so is via a value-driven, concentrated, patient approach. I shun consensus holdings, rich valuations, and market fads, in favor of solid, yet frequently off-the-beaten-path, businesses run by excellent, aligned management teams, purchased at deep discounts to intrinsic value,” are the words of Maran Capital’s Dan Roller. His stock picks have been beating the S&P 500 Index handily. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Chatham Lodging Trust (NYSE:CLDT) and see how it was affected.

Chatham Lodging Trust (NYSE:CLDT) was in 10 hedge funds’ portfolios at the end of December. CLDT has seen an increase in hedge fund interest recently. There were 7 hedge funds in our database with CLDT positions at the end of the previous quarter. Our calculations also showed that cldt isn’t among the 30 most popular stocks among hedge funds.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

CITADEL INVESTMENT GROUP

We’re going to review the recent hedge fund action regarding Chatham Lodging Trust (NYSE:CLDT).

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

At the end of the fourth quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 43% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in CLDT over the last 14 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Renaissance Technologies, managed by Jim Simons, holds the most valuable position in Chatham Lodging Trust (NYSE:CLDT). Renaissance Technologies has a $23.4 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Sitting at the No. 2 spot is Forward Management, led by J. Alan Reid, Jr., holding a $13.6 million position; 4.2% of its 13F portfolio is allocated to the company. Remaining professional money managers that are bullish consist of Ken Griffin’s Citadel Investment Group, John Overdeck and David Siegel’s Two Sigma Advisors and Israel Englander’s Millennium Management.

As one would reasonably expect, specific money managers were leading the bulls’ herd. Algert Coldiron Investors, managed by Peter Algert and Kevin Coldiron, created the most outsized position in Chatham Lodging Trust (NYSE:CLDT). Algert Coldiron Investors had $0.4 million invested in the company at the end of the quarter. David Costen Haley’s HBK Investments also made a $0.2 million investment in the stock during the quarter. The following funds were also among the new CLDT investors: Benjamin A. Smith’s Laurion Capital Management and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s now take a look at hedge fund activity in other stocks similar to Chatham Lodging Trust (NYSE:CLDT). We will take a look at Duluth Holdings Inc. (NASDAQ:DLTH), Washington Trust Bancorp, Inc. (NASDAQ:WASH), National Presto Industries Inc. (NYSE:NPK), and Forrester Research, Inc. (NASDAQ:FORR). All of these stocks’ market caps are similar to CLDT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DLTH 8 12500 -2
WASH 6 24910 -2
NPK 13 94747 3
FORR 10 52714 1
Average 9.25 46218 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $46 million. That figure was $45 million in CLDT’s case. National Presto Industries Inc. (NYSE:NPK) is the most popular stock in this table. On the other hand Washington Trust Bancorp, Inc. (NASDAQ:WASH) is the least popular one with only 6 bullish hedge fund positions. Chatham Lodging Trust (NYSE:CLDT) is not the most popular stock in this group but hedge fund interest is still above average. 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately CLDT wasn’t nearly as popular as these 15 stock and hedge funds that were betting on CLDT were disappointed as the stock returned 10.5% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.

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

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