We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Hersha Hospitality Trust (NYSE:HT) and determine whether hedge funds skillfully traded this stock.
Hersha Hospitality Trust (NYSE:HT) has experienced a decrease in activity from the world's largest hedge funds lately. HT was in 10 hedge funds' portfolios at the end of the first quarter of 2020. There were 15 hedge funds in our database with HT positions at the end of the previous quarter. Our calculations also showed that HT isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_256989" align="aligncenter" width="400"] Dmitry Balyasny of Balyasny Asset Management[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let's analyze the fresh hedge fund action surrounding Hersha Hospitality Trust (NYSE:HT).
Hedge fund activity in Hersha Hospitality Trust (NYSE:HT)
At the end of the first quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -33% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards HT over the last 18 quarters. With hedge funds' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
More specifically, 1060 Capital Management was the largest shareholder of Hersha Hospitality Trust (NYSE:HT), with a stake worth $1 million reported as of the end of September. Trailing 1060 Capital Management was D E Shaw, which amassed a stake valued at $0.9 million. GLG Partners, Millennium Management, and Citadel Investment Group 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 1060 Capital Management allocated the biggest weight to Hersha Hospitality Trust (NYSE:HT), around 10.17% of its 13F portfolio. Engineers Gate Manager is also relatively very bullish on the stock, dishing out 0.01 percent of its 13F equity portfolio to HT.
Since Hersha Hospitality Trust (NYSE:HT) has experienced bearish sentiment from hedge fund managers, we can see that there exists a select few hedge funds who were dropping their entire stakes in the first quarter. Interestingly, Mark Coe's Intrinsic Edge Capital dumped the largest investment of all the hedgies tracked by Insider Monkey, worth an estimated $5.1 million in stock, and Dmitry Balyasny's Balyasny Asset Management was right behind this move, as the fund said goodbye to about $2.8 million worth. These transactions are interesting, as total hedge fund interest dropped by 5 funds in the first quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Hersha Hospitality Trust (NYSE:HT) but similarly valued. These stocks are Evolus, Inc. (NASDAQ:EOLS), Bank of Commerce Holdings (NASDAQ:BOCH), Investar Holding Corporation (NASDAQ:ISTR), and Stratus Properties Inc. (NASDAQ:STRS). This group of stocks' market valuations match HT's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EOLS,12,30585,-3 BOCH,5,7941,-2 ISTR,7,14035,0 STRS,2,20497,-1 Average,6.5,18265,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.5 hedge funds with bullish positions and the average amount invested in these stocks was $18 million. That figure was $4 million in HT's case. Evolus, Inc. (NASDAQ:EOLS) is the most popular stock in this table. On the other hand Stratus Properties Inc. (NASDAQ:STRS) is the least popular one with only 2 bullish hedge fund positions. Hersha Hospitality Trust (NYSE:HT) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on HT as the stock returned 60.9% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.