Hedge funds don’t get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don’t realize is that 100% of the passive funds didn’t see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether GreenTree Hospitality Group Ltd. (NYSE:GHG) is a good investment right now.
Hedge fund interest in GreenTree Hospitality Group Ltd. (NYSE:GHG) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as MRC Global Inc (NYSE:MRC), Big Lots, Inc. (NYSE:BIG), and Natus Medical Incorporated (NASDAQ:NTUS) to gather more data points. Our calculations also showed that GHG 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).
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.
Gifford Combs of Dalton Investments
We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with high accuracy, so we check out his stock picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now we’re going to take a peek at the latest hedge fund action encompassing GreenTree Hospitality Group Ltd. (NYSE:GHG).
Hedge fund activity in GreenTree Hospitality Group Ltd. (NYSE:GHG)
At Q4’s end, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards GHG over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in GreenTree Hospitality Group Ltd. (NYSE:GHG) was held by Sylebra Capital Management, which reported holding $10.1 million worth of stock at the end of September. It was followed by Dalton Investments with a $9.1 million position. Other investors bullish on the company included Guardian Point Capital, Renaissance Technologies, and Aubrey Capital Management. In terms of the portfolio weights assigned to each position Dalton Investments allocated the biggest weight to GreenTree Hospitality Group Ltd. (NYSE:GHG), around 5.83% of its 13F portfolio. Aubrey Capital Management is also relatively very bullish on the stock, setting aside 2.26 percent of its 13F equity portfolio to GHG.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Marshall Wace LLP. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Springbok Capital).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as GreenTree Hospitality Group Ltd. (NYSE:GHG) but similarly valued. We will take a look at MRC Global Inc (NYSE:MRC), Big Lots, Inc. (NYSE:BIG), Natus Medical Incorporated (NASDAQ:NTUS), and Aerie Pharmaceuticals Inc (NASDAQ:AERI). This group of stocks’ market valuations resemble GHG’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MRC | 20 | 72308 | 4 |
| BIG | 24 | 152050 | 2 |
| NTUS | 24 | 97724 | 2 |
| AERI | 21 | 339924 | -9 |
| Average | 22.25 | 165502 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $166 million. That figure was $32 million in GHG’s case. Big Lots, Inc. (NYSE:BIG) is the most popular stock in this table. On the other hand MRC Global Inc (NYSE:MRC) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks GreenTree Hospitality Group Ltd. (NYSE:GHG) is even less popular than MRC. Hedge funds clearly dropped the ball on GHG as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 1.0% in 2020 through May 1st but still beat the market by 12.9 percentage points. A small number of hedge funds were also right about betting on GHG as the stock returned 14.7% during the same time period and outperformed the market by an even larger margin.
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.
