We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money 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 (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards PulteGroup, Inc. (NYSE:PHM).
Is PulteGroup, Inc. (NYSE:PHM) a great stock to buy now? Hedge funds were turning bullish. The number of bullish hedge fund bets rose by 6 in recent months. PulteGroup, Inc. (NYSE:PHM) was in 42 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 36. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that PHM isn't among the 30 most popular stocks among hedge funds (click for Q2 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.
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 S&P 500 ETFs by 58 percentage points since March 2017 (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.
Brad Farber of Atika Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 best artificial intelligence stocks to pick the best growth stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let's take a peek at the fresh hedge fund action encompassing PulteGroup, Inc. (NYSE:PHM).
What have hedge funds been doing with PulteGroup, Inc. (NYSE:PHM)?
At Q2's end, a total of 42 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PHM over the last 20 quarters. With hedgies' capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
Among these funds, Greenhaven Associates held the most valuable stake in PulteGroup, Inc. (NYSE:PHM), which was worth $178.7 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $160.5 million worth of shares. Renaissance Technologies, GLG Partners, and Millennium Management 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 Greenhaven Associates allocated the biggest weight to PulteGroup, Inc. (NYSE:PHM), around 3.96% of its 13F portfolio. DG Capital Management is also relatively very bullish on the stock, setting aside 3.27 percent of its 13F equity portfolio to PHM.
As one would reasonably expect, key money managers were leading the bulls' herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the biggest position in PulteGroup, Inc. (NYSE:PHM). Arrowstreet Capital had $55.3 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also made a $29.2 million investment in the stock during the quarter. The following funds were also among the new PHM investors: Clint Carlson's Carlson Capital, Brad Farber's Atika Capital, and Peter Seuss's Prana Capital Management.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as PulteGroup, Inc. (NYSE:PHM) but similarly valued. These stocks are Suzano S.A. (NYSE:SUZ), Vistra Corp. (NYSE:VST), MGM Growth Properties LLC (NYSE:MGP), Kinross Gold Corporation (NYSE:KGC), PTC Inc (NASDAQ:PTC), Dropbox, Inc. (NASDAQ:DBX), and Autohome Inc (NYSE:ATHM). This group of stocks' market values are closest to PHM's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SUZ,3,28866,0 VST,42,1561642,3 MGP,32,569697,4 KGC,30,806038,2 PTC,40,1255947,5 DBX,51,1326475,7 ATHM,24,820669,9 Average,31.7,909905,4.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.7 hedge funds with bullish positions and the average amount invested in these stocks was $910 million. That figure was $866 million in PHM's case. Dropbox, Inc. (NASDAQ:DBX) is the most popular stock in this table. On the other hand Suzano S.A. (NYSE:SUZ) is the least popular one with only 3 bullish hedge fund positions. PulteGroup, Inc. (NYSE:PHM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PHM is 80.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 30% in 2020 through October 23rd and still beat the market by 21 percentage points. Hedge funds were also right about betting on PHM as the stock returned 29.6% since the end of Q2 (through 10/23) 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.