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Taylor Morrison Home Corp (TMHC): Were Hedge Funds Right About This Stock?

Hedge funds run by legendary names like George Soros and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant outperformance. That’s why we pay special attention to hedge fund activity in these stocks.

Taylor Morrison Home Corp (NYSE:TMHC) was in 19 hedge funds’ portfolios at the end of the second quarter of 2019. TMHC investors should pay attention to an increase in enthusiasm from smart money recently. There were 12 hedge funds in our database with TMHC holdings at the end of the previous quarter. Our calculations also showed that TMHC 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.

According to most investors, hedge funds are seen as worthless, outdated financial tools of years past. While there are over 8000 funds with their doors open at present, We choose to focus on the upper echelon of this group, about 750 funds. It is estimated that this group of investors watch over most of the smart money’s total capital, and by shadowing their best picks, Insider Monkey has come up with a few investment strategies that have historically exceeded the broader indices. Insider Monkey’s flagship hedge fund strategy surpassed the S&P 500 index by around 5 percentage points a year since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .

TMHC_oct2019

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 analyze the key hedge fund action encompassing Taylor Morrison Home Corp (NYSE:TMHC).

How have hedgies been trading Taylor Morrison Home Corp (NYSE:TMHC)?

At Q2’s end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 58% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards TMHC over the last 16 quarters. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

Matthew Lindenbaum Basswood Capital

Of the funds tracked by Insider Monkey, Echo Street Capital Management, managed by Greg Poole, holds the largest position in Taylor Morrison Home Corp (NYSE:TMHC). Echo Street Capital Management has a $57.6 million position in the stock, comprising 1% of its 13F portfolio. Coming in second is Edgar Wachenheim of Greenhaven Associates, with a $57.2 million position; 1% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that are bullish consist of Israel Englander’s Millennium Management, Brian Ashford-Russell and Tim Woolley’s Polar Capital and Matthew Lindenbaum’s Basswood Capital.

Now, key hedge funds have jumped into Taylor Morrison Home Corp (NYSE:TMHC) headfirst. Gillson Capital, managed by Daniel Johnson, initiated the most outsized position in Taylor Morrison Home Corp (NYSE:TMHC). Gillson Capital had $5.7 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also initiated a $5 million position during the quarter. The other funds with new positions in the stock are Jeffrey Talpins’s Element Capital Management, Ken Grossman and Glen Schneider’s SG Capital Management, and Benjamin A. Smith’s Laurion Capital Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Taylor Morrison Home Corp (NYSE:TMHC) but similarly valued. These stocks are Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN), Inovalon Holdings Inc (NASDAQ:INOV), Lexington Realty Trust (NYSE:LXP), and Arco Platform Limited (NASDAQ:ARCE). This group of stocks’ market caps match TMHC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BHVN 38 493841 5
INOV 7 16571 -2
LXP 12 96708 -6
ARCE 9 49379 -2
Average 16.5 164125 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $164 million. That figure was $260 million in TMHC’s case. Biohaven Pharmaceutical Holding Company Ltd. (NYSE:BHVN) is the most popular stock in this table. On the other hand Inovalon Holdings Inc (NASDAQ:INOV) is the least popular one with only 7 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 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. Hedge funds were also right about betting on TMHC as the stock returned 23.8% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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