Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ complex research processes to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space. Nevertheless, it is also possible to find underpriced large-cap stocks by following the hedge funds’ moves.
Is Host Hotels and Resorts Inc (NYSE:HST) a buy right now? The best stock pickers are betting on the stock. The number of long hedge fund bets advanced by 1 recently. Our calculations also showed that HST isn’t among the 30 most popular stocks among hedge funds (view the video below). HST was in 28 hedge funds’ portfolios at the end of June. There were 27 hedge funds in our database with HST positions at the end of the previous quarter.
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 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 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.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s go over the key hedge fund action regarding Host Hotels and Resorts Inc (NYSE:HST).
Hedge fund activity in Host Hotels and Resorts Inc (NYSE:HST)
At the end of the second quarter, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards HST over the last 16 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, AEW Capital Management held the most valuable stake in Host Hotels and Resorts Inc (NYSE:HST), which was worth $84.8 million at the end of the second quarter. On the second spot was GLG Partners which amassed $70.2 million worth of shares. Moreover, Echo Street Capital Management, D E Shaw, and Renaissance Technologies were also bullish on Host Hotels and Resorts Inc (NYSE:HST), allocating a large percentage of their portfolios to this stock.
As industrywide interest jumped, specific money managers have been driving this bullishness. Long Pond Capital, managed by John Khoury, created the most valuable position in Host Hotels and Resorts Inc (NYSE:HST). Long Pond Capital had $24.6 million invested in the company at the end of the quarter. Daniel Johnson’s Gillson Capital also initiated a $3.5 million position during the quarter. The other funds with brand new HST positions are Mario Gabelli’s GAMCO Investors, Minhua Zhang’s Weld Capital Management, and Bruce Kovner’s Caxton Associates LP.
Let’s check out hedge fund activity in other stocks similar to Host Hotels and Resorts Inc (NYSE:HST). These stocks are The J.M. Smucker Company (NYSE:SJM), Fortinet Inc (NASDAQ:FTNT), Tractor Supply Company (NASDAQ:TSCO), and DexCom, Inc. (NASDAQ:DXCM). This group of stocks’ market values resemble HST’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SJM | 26 | 486152 | 0 |
| FTNT | 34 | 1151583 | 0 |
| TSCO | 35 | 652759 | 2 |
| DXCM | 30 | 670521 | -3 |
| Average | 31.25 | 740254 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.25 hedge funds with bullish positions and the average amount invested in these stocks was $740 million. That figure was $513 million in HST’s case. Tractor Supply Company (NASDAQ:TSCO) is the most popular stock in this table. On the other hand The J.M. Smucker Company (NYSE:SJM) is the least popular one with only 26 bullish hedge fund positions. Host Hotels and Resorts Inc (NYSE:HST) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately HST wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HST investors were disappointed as the stock returned -4% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
