At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards PulteGroup, Inc. (NYSE:PHM) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Is PulteGroup, Inc. (NYSE:PHM) a buy, sell, or hold? Investors who are in the know were betting on the stock. The number of long hedge fund positions moved up by 6 in recent months. PulteGroup, Inc. (NYSE:PHM) was in 42 hedge funds’ portfolios at the end of June. The all time high for this statistics is 36. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that PHM isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 56 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now let’s analyze the new hedge fund action surrounding PulteGroup, Inc. (NYSE:PHM).
What have hedge funds been doing with PulteGroup, Inc. (NYSE:PHM)?
At second quarter’s end, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PHM over the last 20 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in PulteGroup, Inc. (NYSE:PHM) was held by Greenhaven Associates, which reported holding $178.7 million worth of stock at the end of September. It was followed by AQR Capital Management with a $160.5 million position. Other investors bullish on the company included Renaissance Technologies, GLG Partners, and Millennium Management. In terms of the portfolio weights assigned to each position Greenhaven Associates allocated the biggest weight to PulteGroup, Inc. (NYSE:PHM), around 3.96% of its 13F portfolio. DG Capital Management is also relatively very bullish on the stock, earmarking 3.27 percent of its 13F equity portfolio to PHM.
As aggregate interest increased, some big names have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the biggest position in PulteGroup, Inc. (NYSE:PHM). Arrowstreet Capital had $55.3 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also made a $29.2 million investment in the stock during the quarter. The other funds with brand new PHM positions are Clint Carlson’s Carlson Capital, Brad Farber’s Atika Capital, and Peter Seuss’s Prana Capital Management.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as PulteGroup, Inc. (NYSE:PHM) but similarly valued. We will take a look at Suzano S.A. (NYSE:SUZ), Vistra Energy Corp. (NYSE:VST), MGM Growth Properties LLC (NYSE:MGP), Kinross Gold Corporation (NYSE:KGC), PTC Inc (NASDAQ:PTC), Dropbox, Inc. (NASDAQ:DBX), and Autohome Inc (NYSE:ATHM). This group of stocks’ market caps resemble PHM’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.7 hedge funds with bullish positions and the average amount invested in these stocks was $910 million. That figure was $866 million in PHM’s case. Dropbox, Inc. (NASDAQ:DBX) is the most popular stock in this table. On the other hand Suzano S.A. (NYSE:SUZ) is the least popular one with only 3 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 overall hedge fund sentiment score for PHM is 80.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Hedge funds were also right about betting on PHM as the stock returned 31% since Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.