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Were Hedge Funds Right About Checking Out Of Hilton Worldwide Holdings Inc (HLT)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (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. In this article, we will take a closer look at hedge fund sentiment towards Hilton Worldwide Holdings Inc (NYSE:HLT) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Hilton Worldwide Holdings Inc (NYSE:HLT) a sound investment now? The best stock pickers were selling. The number of bullish hedge fund positions went down by 14 in recent months. Our calculations also showed that HLT isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Can hedge funds beat the market

Bill Ackman of Pershing Square

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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 gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a glance at the fresh hedge fund action regarding Hilton Worldwide Holdings Inc (NYSE:HLT).

Hedge fund activity in Hilton Worldwide Holdings Inc (NYSE:HLT)

At Q1’s end, a total of 43 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards HLT over the last 18 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

The largest stake in Hilton Worldwide Holdings Inc (NYSE:HLT) was held by Pershing Square, which reported holding $941 million worth of stock at the end of September. It was followed by D1 Capital Partners with a $759.5 million position. Other investors bullish on the company included Eagle Capital Management, Lone Pine Capital, and Pelham Capital. In terms of the portfolio weights assigned to each position Pelham Capital allocated the biggest weight to Hilton Worldwide Holdings Inc (NYSE:HLT), around 16.52% of its 13F portfolio. Pershing Square is also relatively very bullish on the stock, dishing out 14.32 percent of its 13F equity portfolio to HLT.

Due to the fact that Hilton Worldwide Holdings Inc (NYSE:HLT) has faced bearish sentiment from the smart money, it’s easy to see that there is a sect of fund managers that decided to sell off their entire stakes heading into Q4. Interestingly, Eric W. Mandelblatt and Gaurav Kapadia’s Soroban Capital Partners cut the largest stake of the “upper crust” of funds followed by Insider Monkey, worth close to $247.8 million in stock, and James Crichton’s Hitchwood Capital Management was right behind this move, as the fund said goodbye to about $84.3 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 14 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks similar to Hilton Worldwide Holdings Inc (NYSE:HLT). These stocks are State Street Corporation (NYSE:STT), Sun Life Financial Inc. (NYSE:SLF), Franco-Nevada Corporation (NYSE:FNV), and Welltower Inc. (NYSE:WELL). This group of stocks’ market values resemble HLT’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
STT 34 503359 -11
SLF 16 102769 0
FNV 21 896434 -3
WELL 25 313164 1
Average 24 453932 -3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $454 million. That figure was $3133 million in HLT’s case. State Street Corporation (NYSE:STT) is the most popular stock in this table. On the other hand Sun Life Financial Inc. (NYSE:SLF) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Hilton Worldwide Holdings Inc (NYSE:HLT) is more popular among hedge funds. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately HLT wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on HLT were disappointed as the stock returned 7.6% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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