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Hedge Funds Sticking With Taylor Morrison Home Corp (TMHC)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Taylor Morrison Home Corp (NYSE:TMHC) based on that data.

Taylor Morrison Home Corp (NYSE:TMHC) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 28 hedge funds’ portfolios at the end of March. At the end of this article we will also compare TMHC to other stocks including AssetMark Financial Holdings, Inc. (NYSE:AMK), Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS), and Ingevity Corporation (NYSE:NGVT) to get a better sense of its popularity.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Bill Miller

Bill Miller of Miller Value Partners

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 these. 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 glance at the fresh hedge fund action encompassing Taylor Morrison Home Corp (NYSE:TMHC).

What have hedge funds been doing with Taylor Morrison Home Corp (NYSE:TMHC)?

At Q1’s end, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TMHC over the last 18 quarters. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

The largest stake in Taylor Morrison Home Corp (NYSE:TMHC) was held by Oaktree Capital Management, which reported holding $53.1 million worth of stock at the end of September. It was followed by GLG Partners with a $19.8 million position. Other investors bullish on the company included Echo Street Capital Management, Miller Value Partners, and Capital Growth Management. In terms of the portfolio weights assigned to each position Dendur Capital allocated the biggest weight to Taylor Morrison Home Corp (NYSE:TMHC), around 9.78% of its 13F portfolio. Capital Growth Management is also relatively very bullish on the stock, setting aside 2.42 percent of its 13F equity portfolio to TMHC.

Seeing as Taylor Morrison Home Corp (NYSE:TMHC) has experienced bearish sentiment from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of funds who were dropping their full holdings by the end of the first quarter. Intriguingly, Dmitry Balyasny’s Balyasny Asset Management said goodbye to the biggest position of all the hedgies monitored by Insider Monkey, comprising an estimated $68.5 million in stock, and Daniel Johnson’s Gillson Capital was right behind this move, as the fund said goodbye to about $6.3 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Taylor Morrison Home Corp (NYSE:TMHC) but similarly valued. We will take a look at AssetMark Financial Holdings, Inc. (NYSE:AMK), Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS), Ingevity Corporation (NYSE:NGVT), and Insperity Inc (NYSE:NSP). All of these stocks’ market caps match TMHC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AMK 4 25078 -2
KTOS 18 44967 2
NGVT 29 166562 2
NSP 29 154086 8
Average 20 97673 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $98 million. That figure was $215 million in TMHC’s case. Ingevity Corporation (NYSE:NGVT) is the most popular stock in this table. On the other hand AssetMark Financial Holdings, Inc. (NYSE:AMK) is the least popular one with only 4 bullish hedge fund positions. Taylor Morrison Home Corp (NYSE:TMHC) 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 8.3% in 2020 through the end of May but still beat the market by 13.2 percentage points. Hedge funds were also right about betting on TMHC as the stock returned 75.7% in Q2 (through the end of May) 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.