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Did Hedge Funds Drop The Ball On LGI Homes Inc (LGIH) ?

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded LGI Homes Inc (NASDAQ:LGIH) based on those filings.

LGI Homes Inc (NASDAQ:LGIH) investors should pay attention to an increase in hedge fund sentiment lately. LGIH was in 14 hedge funds’ portfolios at the end of March. There were 13 hedge funds in our database with LGIH holdings at the end of the previous quarter. Our calculations also showed that LGIH 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.

CAPITAL GROWTH MANAGEMENT

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology’s influence will go beyond online payments. So, we are checking out this futurist’s moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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 we’re going to view the latest hedge fund action surrounding LGI Homes Inc (NASDAQ:LGIH).

Hedge fund activity in LGI Homes Inc (NASDAQ:LGIH)

At the end of the first quarter, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LGIH over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big move.

Is LGIH A Good Stock To Buy?

Of the funds tracked by Insider Monkey, Ken Heebner’s Capital Growth Management has the number one position in LGI Homes Inc (NASDAQ:LGIH), worth close to $17.2 million, amounting to 2.4% of its total 13F portfolio. The second largest stake is held by Israel Englander of Millennium Management, with a $11.5 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining peers that are bullish encompass Chuck Royce’s Royce & Associates, Richard Driehaus’s Driehaus Capital and Phil Frohlich’s Prescott Group Capital Management. In terms of the portfolio weights assigned to each position DC Capital Partners allocated the biggest weight to LGI Homes Inc (NASDAQ:LGIH), around 19.56% of its 13F portfolio. Capital Growth Management is also relatively very bullish on the stock, designating 2.41 percent of its 13F equity portfolio to LGIH.

As industrywide interest jumped, specific money managers were leading the bulls’ herd. Capital Growth Management, managed by Ken Heebner, initiated the most valuable position in LGI Homes Inc (NASDAQ:LGIH). Capital Growth Management had $17.2 million invested in the company at the end of the quarter. Richard Driehaus’s Driehaus Capital also initiated a $6 million position during the quarter. The other funds with new positions in the stock are Hoon Kim’s Quantinno Capital and Mika Toikka’s AlphaCrest Capital Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as LGI Homes Inc (NASDAQ:LGIH) but similarly valued. We will take a look at Allscripts Healthcare Solutions Inc (NASDAQ:MDRX), Shutterstock Inc (NYSE:SSTK), Industrial Logistics Properties Trust (NASDAQ:ILPT), and Coherus Biosciences Inc (NASDAQ:CHRS). All of these stocks’ market caps match LGIH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MDRX 17 126905 -14
SSTK 13 77238 -2
ILPT 9 60718 -4
CHRS 35 216871 3
Average 18.5 120433 -4.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $120 million. That figure was $53 million in LGIH’s case. Coherus Biosciences Inc (NASDAQ:CHRS) is the most popular stock in this table. On the other hand Industrial Logistics Properties Trust (NASDAQ:ILPT) is the least popular one with only 9 bullish hedge fund positions. LGI Homes Inc (NASDAQ:LGIH) is not the least popular stock in this group but hedge fund interest is still below 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 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. A small number of hedge funds were also right about betting on LGIH as the stock returned 90.8% during the second quarter and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.