Did Hedge Funds Drop The Ball On M/I Homes Inc (MHO)?

How do you pick the next stock to invest in? One way would be to spend hours of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding M/I Homes Inc (NYSE:MHO).

M/I Homes Inc (NYSE:MHO) has seen a decrease in activity from the world’s largest hedge funds in recent months. Our calculations also showed that mho isn’t among the 30 most popular stocks among hedge funds.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chuck Royce

Let’s take a look at the recent hedge fund action regarding M/I Homes Inc (NYSE:MHO).

How are hedge funds trading M/I Homes Inc (NYSE:MHO)?

Heading into the first quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MHO over the last 14 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with MHO Positions

More specifically, Royce & Associates was the largest shareholder of M/I Homes Inc (NYSE:MHO), with a stake worth $9.4 million reported as of the end of December. Trailing Royce & Associates was D E Shaw, which amassed a stake valued at $6.1 million. Basswood Capital, Citadel Investment Group, and Renaissance Technologies were also very fond of the stock, giving the stock large weights in their portfolios.

Because M/I Homes Inc (NYSE:MHO) has experienced declining sentiment from hedge fund managers, we can see that there is a sect of fund managers who were dropping their positions entirely last quarter. It’s worth mentioning that Peter Muller’s PDT Partners dropped the largest stake of all the hedgies watched by Insider Monkey, comprising about $1.3 million in stock. Michael Platt and William Reeves’s fund, BlueCrest Capital Mgmt., also sold off its stock, about $0.2 million worth. These moves are important to note, as total hedge fund interest fell by 2 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as M/I Homes Inc (NYSE:MHO) but similarly valued. We will take a look at KNOT Offshore Partners LP (NYSE:KNOP), Huami Corporation (NYSE:HMI), Marine Products Corp. (NYSE:MPX), and Schnitzer Steel Industries, Inc. (NASDAQ:SCHN). All of these stocks’ market caps are similar to MHO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KNOP 5 7135 1
HMI 4 4362 0
MPX 6 20972 1
SCHN 18 41036 -1
Average 8.25 18376 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.25 hedge funds with bullish positions and the average amount invested in these stocks was $18 million. That figure was $35 million in MHO’s case. Schnitzer Steel Industries, Inc. (NASDAQ:SCHN) is the most popular stock in this table. On the other hand Huami Corporation (NYSE:HMI) is the least popular one with only 4 bullish hedge fund positions. M/I Homes Inc (NYSE:MHO) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on MHO as the stock returned 32.6% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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