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Did Hedge Funds Make The Right Call On PulteGroup, Inc. (PHM) ?

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 PulteGroup, Inc. (NYSE:PHM) and determine whether hedge funds skillfully traded this stock.

Is PulteGroup, Inc. (NYSE:PHM) a bargain? Prominent investors were getting more optimistic. The number of long hedge fund bets inched up by 2 in recent months. Our calculations also showed that PHM 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.

Ken Heebner of Capital Growth Management

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. Keeping this in mind let’s take a glance at the new hedge fund action regarding PulteGroup, Inc. (NYSE:PHM).

How have hedgies been trading PulteGroup, Inc. (NYSE:PHM)?

Heading into the second quarter of 2020, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PHM over the last 18 quarters. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

Among these funds, AQR Capital Management held the most valuable stake in PulteGroup, Inc. (NYSE:PHM), which was worth $105.1 million at the end of the third quarter. On the second spot was Greenhaven Associates which amassed $74.5 million worth of shares. GLG Partners, Renaissance Technologies, 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 Capital Growth Management allocated the biggest weight to PulteGroup, Inc. (NYSE:PHM), around 3.13% of its 13F portfolio. Greenhaven Associates is also relatively very bullish on the stock, dishing out 2.77 percent of its 13F equity portfolio to PHM.

As industrywide interest jumped, some big names have jumped into PulteGroup, Inc. (NYSE:PHM) headfirst. Capital Growth Management, managed by Ken Heebner, created the biggest position in PulteGroup, Inc. (NYSE:PHM). Capital Growth Management had $22.3 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also initiated a $17.8 million position during the quarter. The other funds with brand new PHM positions are Anand Parekh’s Alyeska Investment Group, Chuck Royce’s Royce & Associates, and Joel Greenblatt’s Gotham Asset Management.

Let’s go over hedge fund activity in other stocks similar to PulteGroup, Inc. (NYSE:PHM). We will take a look at GCI Liberty, Inc. (NASDAQ:GLIBA), BanColombia S.A. (NYSE:CIB), Formula One Group (NASDAQ:FWONA), and Albemarle Corporation (NYSE:ALB). This group of stocks’ market valuations match PHM’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GLIBA 49 1833581 2
CIB 11 86861 -3
FWONA 17 257605 -5
ALB 24 73093 1
Average 25.25 562785 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $563 million. That figure was $466 million in PHM’s case. GCI Liberty, Inc. (NASDAQ:GLIBA) is the most popular stock in this table. On the other hand BanColombia S.A. (NYSE:CIB) is the least popular one with only 11 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 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 PHM as the stock returned 53% 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.