Hedge Funds Are Ditching Toll Brothers Inc (TOL)

In this article you are going to find out whether hedge funds think Toll Brothers Inc (NYSE:TOL) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Toll Brothers Inc (NYSE:TOL) was in 20 hedge funds’ portfolios at the end of the first quarter of 2020. TOL investors should be aware of a decrease in enthusiasm from smart money in recent months. There were 31 hedge funds in our database with TOL holdings at the end of the previous quarter. Our calculations also showed that TOL 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Clint Carlson of Carlson Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a peek at the key hedge fund action regarding Toll Brothers Inc (NYSE:TOL).

How have hedgies been trading Toll Brothers Inc (NYSE:TOL)?

Heading into the second quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -35% from the fourth quarter of 2019. On the other hand, there were a total of 28 hedge funds with a bullish position in TOL a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Is TOL A Good Stock To Buy?

Among these funds, Greenhaven Associates held the most valuable stake in Toll Brothers Inc (NYSE:TOL), which was worth $95.7 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $36.4 million worth of shares. Echo Street Capital Management, AQR Capital Management, 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 Toll Brothers Inc (NYSE:TOL), around 3.56% of its 13F portfolio. Echo Street Capital Management is also relatively very bullish on the stock, designating 0.78 percent of its 13F equity portfolio to TOL.

Since Toll Brothers Inc (NYSE:TOL) has experienced bearish sentiment from the smart money, we can see that there were a few hedgies that decided to sell off their full holdings last quarter. Intriguingly, Brandon Haley’s Holocene Advisors said goodbye to the largest investment of the “upper crust” of funds monitored by Insider Monkey, comprising about $21.1 million in stock. Noam Gottesman’s fund, GLG Partners, also dumped its stock, about $18.9 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 11 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Toll Brothers Inc (NYSE:TOL). We will take a look at California Water Service Group (NYSE:CWT), Eagle Materials, Inc. (NYSE:EXP), Agios Pharmaceuticals Inc (NASDAQ:AGIO), and Euronav NV (NYSE:EURN). All of these stocks’ market caps resemble TOL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CWT 16 29065 -4
EXP 34 344795 -4
AGIO 23 304362 0
EURN 33 236366 5
Average 26.5 228647 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $229 million. That figure was $239 million in TOL’s case. Eagle Materials, Inc. (NYSE:EXP) is the most popular stock in this table. On the other hand California Water Service Group (NYSE:CWT) is the least popular one with only 16 bullish hedge fund positions. Toll Brothers Inc (NYSE:TOL) 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 12.2% in 2020 through June 17th and still beat the market by 14.8 percentage points. A small number of hedge funds were also right about betting on TOL as the stock returned 74.2% 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.