Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s analyze whether Sunstone Hotel Investors Inc (NYSE:SHO) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Sunstone Hotel Investors Inc (NYSE:SHO) investors should pay attention to a decrease in hedge fund interest in recent months. SHO was in 22 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 25 hedge funds in our database with SHO positions at the end of the previous quarter. Our calculations also showed that SHO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
According to most shareholders, hedge funds are viewed as worthless, outdated investment vehicles of the past. While there are over 8000 funds trading today, We choose to focus on the top tier of this group, approximately 850 funds. These money managers manage bulk of the hedge fund industry’s total capital, and by tracking their best picks, Insider Monkey has unsheathed a number of investment strategies that have historically beaten Mr. Market. Insider Monkey’s flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
John Overdeck of Two Sigma Advisors
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a look at the fresh hedge fund action regarding Sunstone Hotel Investors Inc (NYSE:SHO).
How are hedge funds trading Sunstone Hotel Investors Inc (NYSE:SHO)?
Heading into the first quarter of 2020, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -12% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SHO over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, holds the number one position in Sunstone Hotel Investors Inc (NYSE:SHO). Renaissance Technologies has a $81.8 million position in the stock, comprising 0.1% of its 13F portfolio. The second largest stake is held by Israel Englander of Millennium Management, with a $64.4 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism consist of Greg Poole’s Echo Street Capital Management, John Overdeck and David Siegel’s Two Sigma Advisors and Dmitry Balyasny’s Balyasny Asset Management. In terms of the portfolio weights assigned to each position Hill Winds Capital allocated the biggest weight to Sunstone Hotel Investors Inc (NYSE:SHO), around 2.25% of its 13F portfolio. Waterfront Capital Partners is also relatively very bullish on the stock, designating 1.19 percent of its 13F equity portfolio to SHO.
Judging by the fact that Sunstone Hotel Investors Inc (NYSE:SHO) has experienced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of funds who were dropping their full holdings by the end of the third quarter. Intriguingly, Renee Yao’s Neo Ivy Capital sold off the biggest position of all the hedgies monitored by Insider Monkey, comprising an estimated $1.2 million in stock. Paul Tudor Jones’s fund, Tudor Investment Corp, also cut its stock, about $0.9 million worth. These moves are interesting, as total hedge fund interest was cut by 3 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks similar to Sunstone Hotel Investors Inc (NYSE:SHO). These stocks are Quidel Corporation (NASDAQ:QDEL), Uniqure NV (NASDAQ:QURE), BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ), and United States Cellular Corporation (NYSE:USM). This group of stocks’ market values resemble SHO’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| QDEL | 18 | 120078 | 3 |
| QURE | 44 | 1052404 | 4 |
| BJ | 22 | 191163 | -4 |
| USM | 21 | 132835 | 3 |
| Average | 26.25 | 374120 | 1.5 |
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 $374 million. That figure was $271 million in SHO’s case. Uniqure NV (NASDAQ:QURE) is the most popular stock in this table. On the other hand Quidel Corporation (NASDAQ:QDEL) is the least popular one with only 18 bullish hedge fund positions. Sunstone Hotel Investors Inc (NYSE:SHO) 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately SHO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); SHO investors were disappointed as the stock returned -36.6% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
