Were Hedge Funds Right About Piling Into Hilton Worldwide Holdings Inc (HLT)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Hilton Worldwide Holdings Inc (NYSE:HLT).

Hilton Worldwide Holdings Inc (NYSE:HLT) was in 60 hedge funds’ portfolios at the end of December. The all time high for this statistic was previously 57. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. HLT investors should pay attention to an increase in hedge fund sentiment in recent months. There were 57 hedge funds in our database with HLT positions at the end of the third quarter. Our calculations also showed that HLT isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Bill Ackman of Pershing Square

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we’re going to check out the key hedge fund action surrounding Hilton Worldwide Holdings Inc (NYSE:HLT).

Do Hedge Funds Think HLT Is A Good Stock To Buy Now?

At fourth quarter’s end, a total of 60 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in HLT over the last 22 quarters. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

Is HLT A Good Stock To Buy?

Among these funds, Pershing Square held the most valuable stake in Hilton Worldwide Holdings Inc (NYSE:HLT), which was worth $1485.3 million at the end of the fourth quarter. On the second spot was Eagle Capital Management which amassed $974.3 million worth of shares. D1 Capital Partners, Viking Global, and Melvin Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Pershing Square allocated the biggest weight to Hilton Worldwide Holdings Inc (NYSE:HLT), around 14.85% of its 13F portfolio. Pelham Capital is also relatively very bullish on the stock, earmarking 14.09 percent of its 13F equity portfolio to HLT.

As one would reasonably expect, key hedge funds have jumped into Hilton Worldwide Holdings Inc (NYSE:HLT) headfirst. Zimmer Partners, managed by Stuart J. Zimmer, established the biggest position in Hilton Worldwide Holdings Inc (NYSE:HLT). Zimmer Partners had $100.1 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $76.7 million position during the quarter. The following funds were also among the new HLT investors: Gaurav Kapadia’s XN Exponent Advisors, Brennan Diaz’s Fernbridge Capital Management, and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Hilton Worldwide Holdings Inc (NYSE:HLT) but similarly valued. These stocks are ResMed Inc. (NYSE:RMD), Republic Services, Inc. (NYSE:RSG), QuantumScape Corporation (NYSE:QS), Zillow Group Inc (NASDAQ:Z), LyondellBasell Industries NV (NYSE:LYB), Phillips 66 (NYSE:PSX), and XPeng Inc. (NYSE:XPEV). This group of stocks’ market valuations resemble HLT’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RMD 27 355462 -8
RSG 36 1099427 -1
QS 35 1848564 35
Z 83 5812175 14
LYB 27 682905 -4
PSX 26 191517 -1
XPEV 30 820952 4
Average 37.7 1544429 5.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 37.7 hedge funds with bullish positions and the average amount invested in these stocks was $1544 million. That figure was $6029 million in HLT’s case. Zillow Group Inc (NASDAQ:Z) is the most popular stock in this table. On the other hand Phillips 66 (NYSE:PSX) is the least popular one with only 26 bullish hedge fund positions. Hilton Worldwide Holdings Inc (NYSE:HLT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HLT is 67.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on HLT as the stock returned 15.7% since the end of Q4 (through 4/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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