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Were Hedge Funds Right About Dumping Host Hotels and Resorts Inc (HST)?

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.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Host Hotels and Resorts Inc (NYSE:HST).

Is Host Hotels and Resorts Inc (NYSE:HST) going to take off soon? The best stock pickers are getting less bullish. The number of bullish hedge fund positions dropped by 3 lately. Our calculations also showed that HST isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 was able to identify in advance a select group of hedge fund holdings that 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.

Michael Platt Bluecrest Capital Management

Michael Platt of BlueCrest Capital Mgmt.

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 we’re going to take a look at the latest hedge fund action surrounding Host Hotels and Resorts Inc (NYSE:HST).

How are hedge funds trading Host Hotels and Resorts Inc (NYSE:HST)?

At the end of the fourth quarter, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from one quarter earlier. By comparison, 22 hedge funds held shares or bullish call options in HST a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies has the most valuable position in Host Hotels and Resorts Inc (NYSE:HST), worth close to $86.4 million, comprising 0.1% of its total 13F portfolio. On Renaissance Technologies’s heels is Greg Poole of Echo Street Capital Management, with a $73 million position; 1.1% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors with similar optimism contain Ken Griffin’s Citadel Investment Group, Stuart J. Zimmer’s Zimmer Partners and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Echo Street Capital Management allocated the biggest weight to Host Hotels and Resorts Inc (NYSE:HST), around 1.13% of its 13F portfolio. Waterfront Capital Partners is also relatively very bullish on the stock, dishing out 0.89 percent of its 13F equity portfolio to HST.

Due to the fact that Host Hotels and Resorts Inc (NYSE:HST) has faced declining sentiment from hedge fund managers, it’s easy to see that there were a few fund managers that decided to sell off their full holdings heading into Q4. It’s worth mentioning that John Khoury’s Long Pond Capital cut the biggest position of the 750 funds followed by Insider Monkey, comprising an estimated $88.6 million in call options, and Paul Singer’s Elliott Management was right behind this move, as the fund sold off about $17.3 million worth. These moves are important to note, as aggregate hedge fund interest fell by 3 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Host Hotels and Resorts Inc (NYSE:HST) but similarly valued. These stocks are Wheaton Precious Metals Corp. (NYSE:WPM), DocuSign, Inc. (NASDAQ:DOCU), Expeditors International of Washington (NASDAQ:EXPD), and Suzano S.A. (NYSE:SUZ). This group of stocks’ market valuations are similar to HST’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WPM 30 476804 1
DOCU 33 905820 5
EXPD 27 290323 -3
SUZ 4 40305 0
Average 23.5 428313 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $428 million. That figure was $410 million in HST’s case. DocuSign, Inc. (NASDAQ:DOCU) is the most popular stock in this table. On the other hand Suzano S.A. (NYSE:SUZ) is the least popular one with only 4 bullish hedge fund positions. Host Hotels and Resorts Inc (NYSE:HST) 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 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 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately HST wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on HST were disappointed as the stock returned -48.1% 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 many of these stocks already outperformed the market so far this year.

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

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