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Were Hedge Funds Right About Dumping Hudson Ltd. (HUD)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find write-ups about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves and analyze what the smart money thinks of Hudson Ltd. (NYSE:HUD) based on that data.

Is Hudson Ltd. (NYSE:HUD) a buy right now? The smart money is taking a pessimistic view. The number of bullish hedge fund bets were cut by 3 recently. Our calculations also showed that HUD isn’t among the 30 most popular stocks among hedge funds (see the video below).
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 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.

Dmitry Balyasny

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to review the latest hedge fund action regarding Hudson Ltd. (NYSE:HUD).

What does smart money think about Hudson Ltd. (NYSE:HUD)?

Heading into the third quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards HUD over the last 16 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with HUD Positions

Among these funds, Renaissance Technologies held the most valuable stake in Hudson Ltd. (NYSE:HUD), which was worth $8.7 million at the end of the second quarter. On the second spot was Citadel Investment Group which amassed $6 million worth of shares. Moreover, Balyasny Asset Management, D E Shaw, and Two Sigma Advisors were also bullish on Hudson Ltd. (NYSE:HUD), allocating a large percentage of their portfolios to this stock.

Seeing as Hudson Ltd. (NYSE:HUD) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there were a few money managers who sold off their positions entirely by the end of the second quarter. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP dropped the largest stake of the 750 funds watched by Insider Monkey, worth close to $0.7 million in stock, and Jeffrey Talpins’s Element Capital Management was right behind this move, as the fund cut about $0.2 million worth. These moves are important to note, as total hedge fund interest was cut by 3 funds by the end of the second quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Hudson Ltd. (NYSE:HUD) but similarly valued. These stocks are Gibraltar Industries Inc (NASDAQ:ROCK), Cardtronics plc (NASDAQ:CATM), Hovnanian Enterprises, Inc. (NYSE:HOV), and SM Energy Company (NYSE:SM). 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
ROCK 10 95650 -4
CATM 19 331653 1
HOV 3 2686 0
SM 18 205491 -3
Average 12.5 158870 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $159 million. That figure was $33 million in HUD’s case. Cardtronics plc (NASDAQ:CATM) is the most popular stock in this table. On the other hand Hovnanian Enterprises, Inc. (NYSE:HOV) is the least popular one with only 3 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. 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately HUD wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HUD investors were disappointed as the stock returned -11% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.

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

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