Were Hedge Funds Right About Tripadvisor Inc (TRIP)?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Tripadvisor Inc (NASDAQ:TRIP).

Tripadvisor Inc (NASDAQ:TRIP) investors should pay attention to a decrease in hedge fund sentiment recently. Tripadvisor Inc (NASDAQ:TRIP) was in 36 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 45. Our calculations also showed that TRIP isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 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 79 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.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV 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. Now let’s review the latest hedge fund action regarding Tripadvisor Inc (NASDAQ:TRIP).

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

At the end of June, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TRIP over the last 24 quarters. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Paul Reeder and Edward Shapiro’s PAR Capital Management has the most valuable position in Tripadvisor Inc (NASDAQ:TRIP), worth close to $466.4 million, accounting for 11.4% of its total 13F portfolio. On PAR Capital Management’s heels is Whale Rock Capital Management, led by Alex Sacerdote, holding a $154.9 million position; 1% of its 13F portfolio is allocated to the stock. Other peers that are bullish contain Brian Ashford-Russell and Tim Woolley’s Polar Capital, D. E. Shaw’s D E Shaw and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position PAR Capital Management allocated the biggest weight to Tripadvisor Inc (NASDAQ:TRIP), around 11.42% of its 13F portfolio. Empirical Capital Partners is also relatively very bullish on the stock, setting aside 5.8 percent of its 13F equity portfolio to TRIP.

Because Tripadvisor Inc (NASDAQ:TRIP) has faced a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of hedge funds that slashed their positions entirely heading into Q3. At the top of the heap, Renaissance Technologies sold off the largest position of the “upper crust” of funds followed by Insider Monkey, worth close to $67.9 million in stock. Steve Cohen’s fund, Point72 Asset Management, also dumped its stock, about $53.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 9 funds heading into Q3.

Let’s check out hedge fund activity in other stocks similar to Tripadvisor Inc (NASDAQ:TRIP). We will take a look at Saia Inc (NASDAQ:SAIA), Olo Inc. (NYSE:OLO), Chindata Group Holdings Limited (NASDAQ:CD), Spirit Realty Capital Inc (NYSE:SRC), Vontier Corporation (NYSE:VNT), Helen of Troy Limited (NASDAQ:HELE), and Surgery Partners, Inc. (NASDAQ:SGRY). This group of stocks’ market valuations match TRIP’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.1 hedge funds with bullish positions and the average amount invested in these stocks was $295 million. That figure was $1178 million in TRIP’s case. Vontier Corporation (NYSE:VNT) is the most popular stock in this table. On the other hand Chindata Group Holdings Limited (NASDAQ:CD) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Tripadvisor Inc (NASDAQ:TRIP) is more popular among hedge funds. Our overall hedge fund sentiment score for TRIP is 70. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 through November 5th and still beat the market by 3.1 percentage points. Unfortunately TRIP wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on TRIP were disappointed as the stock returned -13.1% since the end of the second quarter (through 11/5) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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