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Hedge Funds Souring On M.D.C. Holdings, Inc. (MDC)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of M.D.C. Holdings, Inc. (NYSE:MDC).

M.D.C. Holdings, Inc. (NYSE:MDC) investors should be aware of a decrease in hedge fund sentiment recently. Our calculations also showed that MDC 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.

Roger Ibbotson of Zebra Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when 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 analyze the new hedge fund action regarding M.D.C. Holdings, Inc. (NYSE:MDC).

What does smart money think about M.D.C. Holdings, Inc. (NYSE:MDC)?

Heading into the second quarter of 2020, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MDC over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is MDC A Good Stock To Buy?

More specifically, Capital Growth Management was the largest shareholder of M.D.C. Holdings, Inc. (NYSE:MDC), with a stake worth $37.4 million reported as of the end of September. Trailing Capital Growth Management was Winton Capital Management, which amassed a stake valued at $4.9 million. Royce & Associates, Fisher Asset Management, and AQR Capital 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 M.D.C. Holdings, Inc. (NYSE:MDC), around 5.24% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, dishing out 0.13 percent of its 13F equity portfolio to MDC.

Seeing as M.D.C. Holdings, Inc. (NYSE:MDC) has witnessed a decline in interest from the aggregate hedge fund industry, it’s safe to say that there exists a select few money managers who sold off their entire stakes heading into Q4. At the top of the heap, Israel Englander’s Millennium Management sold off the biggest investment of the “upper crust” of funds followed by Insider Monkey, valued at about $4.6 million in stock. Steve Cohen’s fund, Point72 Asset Management, also sold off its stock, about $3 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 3 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as M.D.C. Holdings, Inc. (NYSE:MDC) but similarly valued. These stocks are First Merchants Corporation (NASDAQ:FRME), Inter Parfums, Inc. (NASDAQ:IPAR), Patterson Companies, Inc. (NASDAQ:PDCO), and Inspire Medical Systems, Inc. (NYSE:INSP). This group of stocks’ market valuations are similar to MDC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FRME 12 64591 0
IPAR 13 46189 -2
PDCO 17 55017 -8
INSP 25 335263 4
Average 16.75 125265 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $125 million. That figure was $61 million in MDC’s case. Inspire Medical Systems, Inc. (NYSE:INSP) is the most popular stock in this table. On the other hand First Merchants Corporation (NASDAQ:FRME) is the least popular one with only 12 bullish hedge fund positions. M.D.C. Holdings, Inc. (NYSE:MDC) 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 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. A small number of hedge funds were also right about betting on MDC as the stock returned 44.2% 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.

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