In this article we will check out the progression of hedge fund sentiment towards D.R. Horton, Inc. (NYSE:DHI) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
D.R. Horton, Inc. (NYSE:DHI) has seen an increase in hedge fund sentiment lately. Our calculations also showed that DHI 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 44 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.
John Armitage of Egerton Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Europe is set to become the world’s largest cannabis market, so we checked out this European marijuana stock pitch. Also, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this analyst’s “corona catalyst plays“. 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. With all of this in mind let’s view the new hedge fund action regarding D.R. Horton, Inc. (NYSE:DHI).
What does smart money think about D.R. Horton, Inc. (NYSE:DHI)?
At the end of the first quarter, a total of 65 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 27% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards DHI over the last 18 quarters. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
The largest stake in D.R. Horton, Inc. (NYSE:DHI) was held by Greenhaven Associates, which reported holding $278.5 million worth of stock at the end of September. It was followed by Egerton Capital Limited with a $203.1 million position. Other investors bullish on the company included Long Pond Capital, Eminence Capital, and Soros Fund Management. In terms of the portfolio weights assigned to each position Greenhaven Associates allocated the biggest weight to D.R. Horton, Inc. (NYSE:DHI), around 10.36% of its 13F portfolio. Long Pond Capital is also relatively very bullish on the stock, earmarking 5.88 percent of its 13F equity portfolio to DHI.
Consequently, some big names were leading the bulls’ herd. Capital Growth Management, managed by Ken Heebner, assembled the most valuable position in D.R. Horton, Inc. (NYSE:DHI). Capital Growth Management had $38.6 million invested in the company at the end of the quarter. Daniel Sundheim’s D1 Capital Partners also initiated a $34.5 million position during the quarter. The following funds were also among the new DHI investors: Patrick Degorce’s Theleme Partners, John Brennan’s Sirios Capital Management, and Alexander Mitchell’s Scopus Asset Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as D.R. Horton, Inc. (NYSE:DHI) but similarly valued. These stocks are Western Digital Corporation (NASDAQ:WDC), Extra Space Storage, Inc. (NYSE:EXR), Energy Transfer L.P. (NYSE:ET), and Wheaton Precious Metals Corp. (NYSE:WPM). All of these stocks’ market caps match DHI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WDC | 45 | 560147 | -4 |
| EXR | 16 | 186130 | -12 |
| ET | 33 | 421900 | -3 |
| WPM | 25 | 545094 | -5 |
| Average | 29.75 | 428318 | -6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.75 hedge funds with bullish positions and the average amount invested in these stocks was $428 million. That figure was $1266 million in DHI’s case. Western Digital Corporation (NASDAQ:WDC) is the most popular stock in this table. On the other hand Extra Space Storage, Inc. (NYSE:EXR) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks D.R. Horton, Inc. (NYSE:DHI) is more popular among hedge funds. 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 returned 7.9% in 2020 through May 22nd but still managed to beat the market by 15.6 percentage points. Hedge funds were also right about betting on DHI as the stock returned 59.6% so far in Q2 (through May 22nd) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.
