Here’s What Hedge Funds Think About William Lyon Homes (WLH)

Does William Lyon Homes (NYSE:WLH) represent a good buying opportunity at the moment? Let’s briefly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.

William Lyon Homes (NYSE:WLH) has seen an increase in support from the world’s most elite money managers recently. Our calculations also showed that WLH isn’t among the 30 most popular stocks among hedge funds.

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 market by 32 percentage points since May 2014 through March 12, 2019 (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.

Clint Carlson, Carlson Capital

Let’s take a gander at the key hedge fund action regarding William Lyon Homes (NYSE:WLH).

How have hedgies been trading William Lyon Homes (NYSE:WLH)?

Heading into the first quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 43% from the previous quarter. The graph below displays the number of hedge funds with bullish position in WLH over the last 14 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.


The largest stake in William Lyon Homes (NYSE:WLH) was held by GMT Capital, which reported holding $30.6 million worth of stock at the end of December. It was followed by Long Pond Capital with a $24.1 million position. Other investors bullish on the company included Carlson Capital, Second Curve Capital, and Royce & Associates.

As industrywide interest jumped, key hedge funds have jumped into William Lyon Homes (NYSE:WLH) headfirst. Ellington, managed by Mike Vranos, created the largest position in William Lyon Homes (NYSE:WLH). Ellington had $4.2 million invested in the company at the end of the quarter. Jim Simons’s Renaissance Technologies also initiated a $3.1 million position during the quarter. The other funds with brand new WLH positions are D. E. Shaw’s D E Shaw, Martin Whitman’s Third Avenue Management, and Benjamin A. Smith’s Laurion Capital Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as William Lyon Homes (NYSE:WLH) but similarly valued. We will take a look at Ashford Hospitality Trust, Inc. (NYSE:AHT), Tribune Publishing Company (NASDAQ:TPCO), Jernigan Capital Inc (NYSE:JCAP), and Clearwater Paper Corp (NYSE:CLW). This group of stocks’ market valuations match WLH’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AHT 15 33618 3
TPCO 14 23967 0
JCAP 10 43755 0
CLW 9 25259 -1
Average 12 31650 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $32 million. That figure was $109 million in WLH’s case. Ashford Hospitality Trust, Inc. (NYSE:AHT) is the most popular stock in this table. On the other hand Clearwater Paper Corp (NYSE:CLW) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks William Lyon Homes (NYSE:WLH) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on WLH as the stock returned 51.2% 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.