A market correction in the fourth quarter, spurred by a number of global macroeconomic concerns and rising interest rates ended up having a negative impact on the markets and many hedge funds as a result. The stocks of smaller companies were especially hard hit during this time as investors fled to investments seen as being safer. This is evident in the fact that the Russell 2000 ETF underperformed the S&P 500 ETF by 4 percentage points during the first half of the fourth quarter. We also received indications that hedge funds were trimming their positions amid the market volatility and uncertainty, and given their greater inclination towards smaller cap stocks than other investors, it follows that a stronger sell-off occurred in those stocks. Let’s study the hedge fund sentiment to see how those concerns affected their ownership of NVR, Inc. (NYSE:NVR) during the quarter.
NVR, Inc. (NYSE:NVR) has experienced an increase in hedge fund sentiment in recent months. NVR was in 25 hedge funds’ portfolios at the end of the third quarter of 2018. There were 21 hedge funds in our database with NVR positions at the end of the previous quarter. Our calculations also showed that NVR 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’ large-cap stock picks indeed failed to the beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s take a look at the fresh hedge fund action surrounding NVR, Inc. (NYSE:NVR).
Hedge fund activity in NVR, Inc. (NYSE:NVR)
Heading into the fourth quarter of 2018, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 19% from the second quarter of 2018. By comparison, 22 hedge funds held shares or bullish call options in NVR heading into this year. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, AQR Capital Management was the largest shareholder of NVR, Inc. (NYSE:NVR), with a stake worth $232.3 million reported as of the end of September. Trailing AQR Capital Management was Diamond Hill Capital, which amassed a stake valued at $226.7 million. Impala Asset Management, Millennium Management, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
As industrywide interest jumped, key money managers have been driving this bullishness. Giverny Capital, managed by Francois Rochon, initiated the largest position in NVR, Inc. (NYSE:NVR). Giverny Capital had $17.3 million invested in the company at the end of the quarter. Clint Murray’s Lodge Hill Capital also made a $6.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Andre F. Perold’s HighVista Strategies, Michael Platt and William Reeves’s BlueCrest Capital Mgmt., and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as NVR, Inc. (NYSE:NVR) but similarly valued. We will take a look at Bausch Health Companies Inc. (NYSE:BHC), Momo Inc (NASDAQ:MOMO), Zillow Group Inc (NASDAQ:Z), and BorgWarner Inc. (NYSE:BWA). This group of stocks’ market valuations are similar to NVR’s market valuation.
|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 29.75 hedge funds with bullish positions and the average amount invested in these stocks was $1.09 billion. That figure was $847 million in NVR’s case. Momo Inc (NASDAQ:MOMO) is the most popular stock in this table. On the other hand Zillow Group Inc (NASDAQ:Z) is the least popular one with only 22 bullish hedge fund positions. NVR, Inc. (NYSE:NVR) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard MOMO might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.