Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before last year’s Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Pebblebrook Hotel Trust (NYSE:PEB) changed recently.
Is Pebblebrook Hotel Trust (NYSE:PEB) the right investment to pursue these days? Investors who are in the know are becoming less confident. The number of long hedge fund bets fell by 1 lately. Our calculations also showed that PEB 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.
Israel Englander of Millennium 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. Let’s take a look at the latest hedge fund action surrounding Pebblebrook Hotel Trust (NYSE:PEB).
How are hedge funds trading Pebblebrook Hotel Trust (NYSE:PEB)?
Heading into the fourth quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the second quarter of 2019. By comparison, 11 hedge funds held shares or bullish call options in PEB a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Parag Vora’s HG Vora Capital Management has the number one position in Pebblebrook Hotel Trust (NYSE:PEB), worth close to $51.5 million, comprising 4.9% of its total 13F portfolio. The second largest stake is held by Israel Englander of Millennium Management, with a $14.9 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that are bullish comprise Greg Poole’s Echo Street Capital Management, Ken Griffin’s Citadel Investment Group and Renaissance Technologies. In terms of the portfolio weights assigned to each position HG Vora Capital Management allocated the biggest weight to Pebblebrook Hotel Trust (NYSE:PEB), around 4.93% of its 13F portfolio. Neo Ivy Capital is also relatively very bullish on the stock, designating 0.64 percent of its 13F equity portfolio to PEB.
Since Pebblebrook Hotel Trust (NYSE:PEB) has witnessed declining sentiment from the smart money, we can see that there were a few hedgies that decided to sell off their full holdings by the end of the third quarter. Interestingly, Stuart J. Zimmer’s Zimmer Partners said goodbye to the biggest investment of all the hedgies watched by Insider Monkey, worth close to $28.2 million in stock. Gavin Saitowitz and Cisco J. del Valle’s fund, Springbok Capital, also dumped its stock, about $2.9 million worth. These moves are interesting, as total hedge fund interest dropped by 1 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks similar to Pebblebrook Hotel Trust (NYSE:PEB). We will take a look at Exponent, Inc. (NASDAQ:EXPO), J&J Snack Foods Corp. (NASDAQ:JJSF), Umpqua Holdings Corporation (NASDAQ:UMPQ), and Valley National Bancorp (NASDAQ:VLY). All of these stocks’ market caps are closest to PEB’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EXPO | 18 | 115116 | 3 |
| JJSF | 17 | 132052 | 4 |
| UMPQ | 20 | 140686 | 0 |
| VLY | 15 | 13438 | 4 |
| Average | 17.5 | 100323 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $100 million. That figure was $105 million in PEB’s case. Umpqua Holdings Corporation (NASDAQ:UMPQ) is the most popular stock in this table. On the other hand Valley National Bancorp (NASDAQ:VLY) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Pebblebrook Hotel Trust (NYSE:PEB) is even less popular than VLY. Hedge funds dodged a bullet by taking a bearish stance towards PEB. 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 PEB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PEB investors were disappointed as the stock returned -5.8% 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.
