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M/I Homes Inc (MHO): Hedge Funds Cashed Out Too Early

Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to M/I Homes Inc (NYSE:MHO) changed recently.

M/I Homes Inc (NYSE:MHO) has seen a decrease in hedge fund sentiment recently. MHO was in 10 hedge funds’ portfolios at the end of June. There were 15 hedge funds in our database with MHO positions at the end of the previous quarter. Our calculations also showed that MHO isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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’ large-cap stock picks indeed failed to 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 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Matthew Lindenbaum Basswood Capital

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s check out the recent hedge fund action encompassing M/I Homes Inc (NYSE:MHO).

How are hedge funds trading M/I Homes Inc (NYSE:MHO)?

Heading into the third quarter of 2019, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -33% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MHO over the last 16 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

MHO_oct2019

According to Insider Monkey’s hedge fund database, Basswood Capital, managed by Matthew Lindenbaum, holds the most valuable position in M/I Homes Inc (NYSE:MHO). Basswood Capital has a $18.4 million position in the stock, comprising 1.1% of its 13F portfolio. The second largest stake is held by Dmitry Balyasny of Balyasny Asset Management, with a $15.9 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism consist of Chuck Royce’s Royce & Associates, Israel Englander’s Millennium Management and Ken Fisher’s Fisher Asset Management.

Seeing as M/I Homes Inc (NYSE:MHO) has faced falling interest from the smart money, we can see that there were a few money managers that decided to sell off their full holdings heading into Q3. Intriguingly, Steve Pei’s Gratia Capital said goodbye to the largest investment of all the hedgies tracked by Insider Monkey, valued at about $1.5 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund sold off about $1.2 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 5 funds heading into Q3.

Let’s go over hedge fund activity in other stocks similar to M/I Homes Inc (NYSE:MHO). We will take a look at Oritani Financial Corp. (NASDAQ:ORIT), Tivity Health, Inc. (NASDAQ:TVTY), Myovant Sciences Ltd. (NYSE:MYOV), and Pitney Bowes Inc. (NYSE:PBI). This group of stocks’ market caps are closest to MHO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ORIT 6 36758 -1
TVTY 16 188253 -4
MYOV 8 80166 2
PBI 18 68134 -6
Average 12 93328 -2.25

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 $93 million. That figure was $58 million in MHO’s case. Pitney Bowes Inc. (NYSE:PBI) is the most popular stock in this table. On the other hand Oritani Financial Corp. (NASDAQ:ORIT) is the least popular one with only 6 bullish hedge fund positions. M/I Homes Inc (NYSE:MHO) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on MHO as the stock returned 31.9% during the same time frame and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.

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