July was the best month for new-home sales in almost a decade. A robust labor market and low mortgage rates helped Americans return to late-2007 new-home purchase levels, with the seasonally-adjusted rate hitting 654,000 annual units. Along with soaring demand rose residential construction, which was was a positive for construction companies, which have added 215,000 jobs over the past year.
In this article, we’ll take a look into the favorite homebuilders of hedge funds going into the third quarter in order to find a few ways to capitalize on the booming U.S. housing market.
Through extensive research, we determined that imitating some of the picks of hedge funds and other institutional investors can help generate market-beating returns over the long run. The key is to focus on the small-cap picks of these investors, since they are usually less followed by the broader market and are less price-efficient. Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see the details here).
#5. PulteGroup, Inc. (NYSE:PHM)
– Number of Hedge Funds With Long Positions (as of June 30): 24
– Aggregate Value of Hedge Funds’ Holdings (as of June 30): $367.1 million
Let’s start with PulteGroup, Inc. (NYSE:PHM), which saw the number of hedge funds in our database long its stock tumble by more than 17% over the second quarter. Among the funds that remained bullish on the stock were ClearBridge LLC (formerly Legg Mason Capital Management), which disclosed ownership of 5.92 million shares of the homebuilder valued at $115 million as of June 30, and Edgar Wachenheim’s Greenhaven Associates, which after a 10% increase to its position over the second quarter, held 4.75 million shares of the company.
Shares of PulteGroup, Inc. (NYSE:PHM) have gained more than 20% year-to-date, and over 13% since the end of the second quarter. Yesterday, the company launched a new gated community at Spring Branch, aimed at young families and millennials. The complex will include 55 two-story homes, to be sold starting around $300,000. Last month, the company priced an upsized debt offering of $1 billion; 4.25% notes due 2021 were offered at 103.5% of the principal amount (with YTM of 3.419%), and the 2027 3.419% notes were sold at par, with YTM of 5%.
#4. NVR, Inc. (NYSE:NVR)
– Number of Hedge Funds With Long Positions (as of June 30): 25
– Aggregate Value of Hedge Funds’ Holdings (as of June 30): $692 million
Opposite was the case for NVR, Inc. (NYSE:NVR), as the number of hedge fund backers of the company rose by 8.6% to 25 over the second quarter. One of the new shareholders was Jeff Lignelli’s Incline Global Management, which acquired 16,362 shares over the April-to-June period. Robert Bishop’s Impala Asset Management, with 124,839 shares, or more than $222 million in stock on June 30 ranked as one of NVR’s top shareholders.
While shares of NVR, Inc. (NYSE:NVR) had a good start to the year, gaining more than 8.3% in the first quarter, they have tumbled by 2.8% since the beginning of the third quarter, part of a decline that started in late-July after the company posted disappointing second quarter results. While revenue of $1.39 billion was in-line with the Street’s consensus, EPS of $22.01 missed estimates by $3.99.
Hedge funds’ three favorite homebuilders are unveiled on the next page.