Did Hedge Funds Make The Right Call On Huazhu Group Limited (HTHT) ?

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 Huazhu Group Limited (NASDAQ:HTHT) and determine whether the smart money was really smart about this stock.

Is Huazhu Group Limited (NASDAQ:HTHT) a bargain? Hedge funds were taking a bearish view. The number of long hedge fund bets were cut by 1 lately. Our calculations also showed that HTHT 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.

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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Kerr Neilson of Platinum Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now let’s view the fresh hedge fund action regarding Huazhu Group Limited (NASDAQ:HTHT).

Hedge fund activity in Huazhu Group Limited (NASDAQ:HTHT)

At the end of the first quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards HTHT over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Yiheng Capital held the most valuable stake in Huazhu Group Limited (NASDAQ:HTHT), which was worth $87.3 million at the end of the third quarter. On the second spot was Platinum Asset Management which amassed $75.9 million worth of shares. Generation Investment Management, D E Shaw, and AQR 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 Yiheng Capital allocated the biggest weight to Huazhu Group Limited (NASDAQ:HTHT), around 6.87% of its 13F portfolio. Old Well Partners is also relatively very bullish on the stock, designating 6.13 percent of its 13F equity portfolio to HTHT.

Judging by the fact that Huazhu Group Limited (NASDAQ:HTHT) has witnessed a decline in interest from the smart money, it’s safe to say that there is a sect of funds who sold off their positions entirely by the end of the first quarter. Interestingly, Josh Resnick’s Jericho Capital Asset Management dropped the largest investment of the “upper crust” of funds followed by Insider Monkey, valued at close to $33 million in stock, and Run Ye, Junji Takegami and Hoyon Hwang’s Tiger Pacific Capital was right behind this move, as the fund cut about $4.7 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 1 funds by the end of the first quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Huazhu Group Limited (NASDAQ:HTHT) but similarly valued. These stocks are Molson Coors Beverage Company (NYSE:TAP), Concho Resources Inc. (NYSE:CXO), Cna Financial Corporation (NYSE:CNA), and Kirkland Lake Gold Ltd. (NYSE:KL). This group of stocks’ market values are similar to HTHT’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.25 hedge funds with bullish positions and the average amount invested in these stocks was $339 million. That figure was $256 million in HTHT’s case. Molson Coors Beverage Company (NYSE:TAP) is the most popular stock in this table. On the other hand Cna Financial Corporation (NYSE:CNA) is the least popular one with only 12 bullish hedge fund positions. Huazhu Group Limited (NASDAQ:HTHT) 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 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 18.6% in 2020 through July 27th and surpassed the market by 17.1 percentage points. Unfortunately HTHT wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); HTHT investors were disappointed as the stock returned 17.3% since Q1 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 most of these stocks already outperformed the market in 2020.

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