Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 12.1% in 2019 (through May 30th). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of 18.7% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like The Howard Hughes Corporation (NYSE:HHC).
Is The Howard Hughes Corporation (NYSE:HHC) a buy right now? The best stock pickers are turning less bullish. The number of long hedge fund positions were trimmed by 4 recently. Our calculations also showed that HHC isn’t among the 30 most popular stocks among hedge funds. HHC was in 22 hedge funds’ portfolios at the end of the first quarter of 2019. There were 26 hedge funds in our database with HHC holdings at the end of the previous quarter.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s view the fresh hedge fund action regarding The Howard Hughes Corporation (NYSE:HHC).
How have hedgies been trading The Howard Hughes Corporation (NYSE:HHC)?
At the end of the first quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards HHC over the last 15 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
More specifically, Horizon Asset Management was the largest shareholder of The Howard Hughes Corporation (NYSE:HHC), with a stake worth $196.8 million reported as of the end of March. Trailing Horizon Asset Management was Pershing Square, which amassed a stake valued at $131.4 million. Cardinal Capital, AEW Capital Management, and Locust Wood Capital Advisers were also very fond of the stock, giving the stock large weights in their portfolios.
Since The Howard Hughes Corporation (NYSE:HHC) has experienced falling interest from the smart money, it’s safe to say that there was a specific group of hedgies who sold off their positions entirely in the third quarter. At the top of the heap, Benjamin A. Smith’s Laurion Capital Management sold off the largest investment of all the hedgies tracked by Insider Monkey, worth close to $16.3 million in stock. David Costen Haley’s fund, HBK Investments, also said goodbye to its stock, about $1.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 4 funds in the third quarter.
Let’s go over hedge fund activity in other stocks similar to The Howard Hughes Corporation (NYSE:HHC). These stocks are Ascendis Pharma A/S (NASDAQ:ASND), DCP Midstream LP (NYSE:DCP), BRF SA (NYSE:BRFS), and Paylocity Holding Corp (NASDAQ:PCTY). This group of stocks’ market values are similar to HHC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ASND | 35 | 2904435 | 9 |
| DCP | 2 | 8323 | -3 |
| BRFS | 10 | 53894 | 1 |
| PCTY | 24 | 148784 | 10 |
| Average | 17.75 | 778859 | 4.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $779 million. That figure was $472 million in HHC’s case. Ascendis Pharma A/S (NASDAQ:ASND) is the most popular stock in this table. On the other hand DCP Midstream LP (NYSE:DCP) is the least popular one with only 2 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 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately HHC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on HHC were disappointed as the stock returned -5.4% during the same 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
