Amid an overall market correction, many stocks that smart money investors were collectively bullish on tanked during the fourth quarter. Among them, Amazon and Netflix ranked among the top 30 picks and both lost around 20%. Facebook, which was the second most popular stock, lost 14% amid uncertainty regarding the interest rates and tech valuations. Nevertheless, our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Hyatt Hotels Corporation (NYSE:H) has seen a decrease in activity from the world’s largest hedge funds recently. Our calculations also showed that H isn’t among the 30 most popular stocks among hedge funds.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 18 percentage points since May 2014 through December 3, 2018 (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.
We’re going to view the new hedge fund action encompassing Hyatt Hotels Corporation (NYSE:H).
What does the smart money think about Hyatt Hotels Corporation (NYSE:H)?
At the end of the third quarter, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from one quarter earlier. On the other hand, there were a total of 34 hedge funds with a bullish position in H at the beginning of this year. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
Among these funds, D E Shaw held the most valuable stake in Hyatt Hotels Corporation (NYSE:H), which was worth $133.1 million at the end of the third quarter. On the second spot was Select Equity Group which amassed $120.2 million worth of shares. Moreover, AQR Capital Management, Millennium Management, and Renaissance Technologies were also bullish on Hyatt Hotels Corporation (NYSE:H), allocating a large percentage of their portfolios to this stock.
Judging by the fact that Hyatt Hotels Corporation (NYSE:H) has faced falling interest from the smart money, we can see that there lies a certain “tier” of hedgies that slashed their entire stakes heading into Q3. It’s worth mentioning that Steve Cohen’s Point72 Asset Management said goodbye to the largest position of all the hedgies monitored by Insider Monkey, comprising an estimated $65.2 million in stock, and Gabriel Plotkin’s Melvin Capital Management was right behind this move, as the fund dropped about $38.6 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 7 funds heading into Q3.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Hyatt Hotels Corporation (NYSE:H) but similarly valued. We will take a look at Teledyne Technologies Incorporated (NYSE:TDY), Carvana Co. (NYSE:CVNA), Alnylam Pharmaceuticals, Inc. (NASDAQ:ALNY), and Lennox International Inc. (NYSE:LII). All of these stocks’ market caps are closest to H’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TDY | 19 | 436271 | -5 |
| CVNA | 33 | 1005885 | 6 |
| ALNY | 32 | 727850 | -3 |
| LII | 23 | 210602 | 5 |
| Average | 26.75 | 595152 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.75 hedge funds with bullish positions and the average amount invested in these stocks was $595 million. That figure was $827 million in H’s case. Carvana Co. (NYSE:CVNA) is the most popular stock in this table. On the other hand Teledyne Technologies Incorporated (NYSE:TDY) is the least popular one with only 19 bullish hedge fund positions. Hyatt Hotels Corporation (NYSE:H) 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. In this regard CVNA might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
