Is Huazhu Group Limited (NASDAQ:HTHT) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Huazhu Group Limited (NASDAQ:HTHT) has seen an increase in support from the world’s most elite money managers recently. Our calculations also showed that HTHT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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 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 stocks that are in our short portfolio.
David Blood of Generation Investment Management
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. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to go over the latest hedge fund action regarding Huazhu Group Limited (NASDAQ:HTHT).
Hedge fund activity in Huazhu Group Limited (NASDAQ:HTHT)
Heading into the fourth quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards HTHT 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.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Jonathan Guo’s Yiheng Capital has the biggest position in Huazhu Group Limited (NASDAQ:HTHT), worth close to $93.6 million, corresponding to 11.5% of its total 13F portfolio. On Yiheng Capital’s heels is Generation Investment Management, managed by David Blood and Al Gore, which holds a $27.7 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Some other peers that hold long positions comprise Lei Zhang’s Hillhouse Capital Management, Cliff Asness’s AQR Capital Management and Run Ye, Junji Takegami and Hoyon Hwang’s Tiger Pacific Capital. In terms of the portfolio weights assigned to each position Yiheng Capital allocated the biggest weight to Huazhu Group Limited (NASDAQ:HTHT), around 11.46% of its 13F portfolio. Tiger Pacific Capital is also relatively very bullish on the stock, designating 3.23 percent of its 13F equity portfolio to HTHT.
Now, some big names have been driving this bullishness. Generation Investment Management, managed by David Blood and Al Gore, initiated the most valuable position in Huazhu Group Limited (NASDAQ:HTHT). Generation Investment Management had $27.7 million invested in the company at the end of the quarter. Lei Zhang’s Hillhouse Capital Management also initiated a $20.2 million position during the quarter. The other funds with brand new HTHT positions are Run Ye, Junji Takegami and Hoyon Hwang’s Tiger Pacific Capital, Kerr Neilson’s Platinum Asset Management, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s also examine hedge fund activity in other stocks similar to Huazhu Group Limited (NASDAQ:HTHT). We will take a look at Viacom, Inc. (NASDAQ:VIAB), LKQ Corporation (NASDAQ:LKQ), Allegion plc (NYSE:ALLE), and Aqua America Inc (NYSE:WTR). This group of stocks’ market valuations are similar to HTHT’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VIAB | 37 | 727074 | -4 |
| LKQ | 41 | 1409448 | -4 |
| ALLE | 26 | 450412 | 2 |
| WTR | 33 | 832797 | 12 |
| Average | 34.25 | 854933 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.25 hedge funds with bullish positions and the average amount invested in these stocks was $855 million. That figure was $193 million in HTHT’s case. LKQ Corporation (NASDAQ:LKQ) is the most popular stock in this table. On the other hand Allegion plc (NYSE:ALLE) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks Huazhu Group Limited (NASDAQ:HTHT) is even less popular than ALLE. Hedge funds dodged a bullet by taking a bearish stance towards HTHT. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately HTHT wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); HTHT investors were disappointed as the stock returned 3.6% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
