Were Hedge Funds Right About The Howard Hughes Corporation (HHC)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded The Howard Hughes Corporation (NYSE:HHC) and determine whether the smart money was really smart about this stock.

The Howard Hughes Corporation (NYSE:HHC) has seen a decrease in activity from the world’s largest hedge funds in recent months. HHC was in 24 hedge funds’ portfolios at the end of March. There were 25 hedge funds in our database with HHC positions at the end of the previous quarter. Our calculations also showed that HHC 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.

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 58 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Bill Ackman of Pershing Square

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Now let’s take a peek at the fresh hedge fund action surrounding The Howard Hughes Corporation (NYSE:HHC).

What does smart money think about The Howard Hughes Corporation (NYSE:HHC)?

At Q1’s end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in HHC over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in The Howard Hughes Corporation (NYSE:HHC) was held by Pershing Square, which reported holding $616.2 million worth of stock at the end of September. It was followed by Horizon Asset Management with a $69.7 million position. Other investors bullish on the company included Cardinal Capital, Rima Senvest Management, and MIC Capital Partners. In terms of the portfolio weights assigned to each position Pershing Square allocated the biggest weight to The Howard Hughes Corporation (NYSE:HHC), around 9.37% of its 13F portfolio. MIC Capital Partners is also relatively very bullish on the stock, dishing out 4.86 percent of its 13F equity portfolio to HHC.

Since The Howard Hughes Corporation (NYSE:HHC) has experienced falling interest from the smart money, it’s safe to say that there exists a select few fund managers who sold off their entire stakes in the first quarter. It’s worth mentioning that Matthew Halbower’s Pentwater Capital Management sold off the largest position of the “upper crust” of funds monitored by Insider Monkey, worth about $19.7 million in stock, and Martin Whitman’s Third Avenue Management was right behind this move, as the fund cut about $14.3 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 1 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as The Howard Hughes Corporation (NYSE:HHC) but similarly valued. We will take a look at MGIC Investment Corporation (NYSE:MTG), Bank OZK (NASDAQ:OZK), First Hawaiian, Inc. (NASDAQ:FHB), and Gates Industrial Corporation plc (NYSE:GTES). All of these stocks’ market caps are closest to HHC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MTG 41 268781 4
OZK 25 146154 0
FHB 21 136967 3
GTES 8 23102 -1
Average 23.75 143751 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $144 million. That figure was $792 million in HHC’s case. MGIC Investment Corporation (NYSE:MTG) is the most popular stock in this table. On the other hand Gates Industrial Corporation plc (NYSE:GTES) is the least popular one with only 8 bullish hedge fund positions. The Howard Hughes Corporation (NYSE:HHC) 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 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 but beat the market by 15.5 percentage points. Unfortunately HHC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on HHC were disappointed as the stock returned 2.8% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

Follow Howard Hughes Corp (NYSE:HHC)

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