After several tireless days we have finished crunching the numbers from the more than 700 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of September 30. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Huazhu Group Limited (NASDAQ:HTHT).
Is Huazhu Group Limited (NASDAQ:HTHT) a bargain? Investors who are in the know are getting less optimistic. The number of bullish hedge fund positions dropped by 1 in recent months. Our calculations also showed that htht isn’t among the 30 most popular stocks among hedge funds.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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 our short portfolio.
Cliff Asness of AQR Capital Management
Let’s review the recent hedge fund action surrounding Huazhu Group Limited (NASDAQ:HTHT).
How have hedgies been trading Huazhu Group Limited (NASDAQ:HTHT)?
At the end of the third quarter, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the previous quarter. By comparison, 21 hedge funds held shares or bullish call options in HTHT heading into this year. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
Among these funds, AQR Capital Management held the most valuable stake in Huazhu Group Limited (NASDAQ:HTHT), which was worth $16.8 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $7 million worth of shares. Moreover, Millennium Management, Highbridge Capital Management, and Citadel Investment Group were also bullish on Huazhu Group Limited (NASDAQ:HTHT), allocating a large percentage of their portfolios to this stock.
Due to the fact that Huazhu Group Limited (NASDAQ:HTHT) has witnessed falling interest from the smart money, we can see that there lies a certain “tier” of hedge funds that decided to sell off their full holdings in the third quarter. It’s worth mentioning that Yi Xin’s Ariose Capital dumped the biggest investment of the 700 funds watched by Insider Monkey, worth an estimated $212.5 million in stock. Richard Driehaus’s fund, Driehaus Capital, also said goodbye to its stock, about $13.4 million worth. These transactions are interesting, as total hedge fund interest was cut by 1 funds in the third quarter.
Let’s go over hedge fund activity in other stocks similar to Huazhu Group Limited (NASDAQ:HTHT). We will take a look at Amdocs Limited (NASDAQ:DOX), Bio-Rad Laboratories, Inc. (NYSE:BIO), Everest Re Group Ltd (NYSE:RE), and Federal Realty Investment Trust (NYSE:FRT). This group of stocks’ market valuations match HTHT’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DOX | 21 | 643420 | 0 |
| BIO | 38 | 811052 | 2 |
| RE | 14 | 486625 | -6 |
| FRT | 21 | 252350 | 1 |
| Average | 23.5 | 548362 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $548 million. That figure was $41 million in HTHT’s case. Bio-Rad Laboratories, Inc. (NYSE:BIO) is the most popular stock in this table. On the other hand Everest Re Group Ltd (NYSE:RE) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Huazhu Group Limited (NASDAQ:HTHT) is even less popular than RE. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None. This article was originally published at Insider Monkey.
