It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned 31.2% in 2019. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.3% 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’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like The Howard Hughes Corporation (NYSE:HHC).
The Howard Hughes Corporation (NYSE:HHC) was in 25 hedge funds’ portfolios at the end of September. HHC investors should pay attention to a decrease in hedge fund interest of late. There were 26 hedge funds in our database with HHC positions at the end of the previous quarter. Our calculations also showed that HHC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Bill Ackman of Pershing Square
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Keeping this in mind we’re going to take a glance at the key hedge fund action encompassing The Howard Hughes Corporation (NYSE:HHC).
How are hedge funds trading The Howard Hughes Corporation (NYSE:HHC)?
Heading into the fourth quarter of 2019, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards HHC over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Horizon Asset Management held the most valuable stake in The Howard Hughes Corporation (NYSE:HHC), which was worth $203.6 million at the end of the third quarter. On the second spot was Pershing Square which amassed $154.8 million worth of shares. Pentwater Capital Management, Renaissance Technologies, and Cardinal Capital 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 Horizon Asset Management allocated the biggest weight to The Howard Hughes Corporation (NYSE:HHC), around 6.13% of its 13F portfolio. Swift Run Capital Management is also relatively very bullish on the stock, setting aside 5.03 percent of its 13F equity portfolio to HHC.
Seeing as The Howard Hughes Corporation (NYSE:HHC) has faced declining sentiment from the smart money, it’s safe to say that there were a few money managers who sold off their entire stakes by the end of the third quarter. Interestingly, Jeffrey Furber’s AEW Capital Management sold off the biggest stake of all the hedgies watched by Insider Monkey, comprising about $25.3 million in stock, and David M. Knott’s Dorset Management was right behind this move, as the fund cut about $1.6 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 1 funds by the end of the third quarter.
Let’s check out hedge fund activity in other stocks similar to The Howard Hughes Corporation (NYSE:HHC). These stocks are IAA, Inc. (NYSE:IAA), KT Corporation (NYSE:KT), Cullen/Frost Bankers, Inc. (NYSE:CFR), and National Instruments Corporation (NASDAQ:NATI). This group of stocks’ market valuations are similar to HHC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IAA | 31 | 758086 | -11 |
| KT | 18 | 267914 | -1 |
| CFR | 20 | 116202 | 2 |
| NATI | 22 | 310660 | 0 |
| Average | 22.75 | 363216 | -2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $363 million. That figure was $527 million in HHC’s case. IAA, Inc. (NYSE:IAA) is the most popular stock in this table. On the other hand KT Corporation (NYSE:KT) is the least popular one with only 18 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 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 29.9% in 2019 and trailed 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 many of these stocks already outperformed the market so far this year.
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.
