Were Hedge Funds Right About Lennar Corporation (LEN)?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 823 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Lennar Corporation (NYSE:LEN) in this article.

Is Lennar Corporation (NYSE:LEN) a buy here? Money managers were selling. The number of long hedge fund positions went down by 2 lately. Lennar Corporation (NYSE:LEN) was in 55 hedge funds’ portfolios at the end of June. The all time high for this statistics is 66. Our calculations also showed that LEN isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

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

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 56 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind let’s take a look at the fresh hedge fund action encompassing Lennar Corporation (NYSE:LEN).

Hedge fund activity in Lennar Corporation (NYSE:LEN)

Heading into the third quarter of 2020, a total of 55 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in LEN over the last 20 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Edgar Wachenheim’s Greenhaven Associates has the number one position in Lennar Corporation (NYSE:LEN), worth close to $582.9 million, corresponding to 12.9% of its total 13F portfolio. Coming in second is Eminence Capital, led by Ricky Sandler, holding a $138.4 million position; 1.4% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that hold long positions comprise Patrick Degorce’s Theleme Partners, Greg Poole’s Echo Street Capital Management and Ken Fisher’s Fisher Asset Management. In terms of the portfolio weights assigned to each position Greenhaven Associates allocated the biggest weight to Lennar Corporation (NYSE:LEN), around 12.9% of its 13F portfolio. Capital Growth Management is also relatively very bullish on the stock, dishing out 6.02 percent of its 13F equity portfolio to LEN.

Seeing as Lennar Corporation (NYSE:LEN) has faced falling interest from hedge fund managers, it’s safe to say that there is a sect of hedge funds that slashed their positions entirely last quarter. It’s worth mentioning that Daniel S. Och’s OZ Management dumped the biggest stake of the “upper crust” of funds tracked by Insider Monkey, valued at close to $11.2 million in stock, and George Soros’s Soros Fund Management was right behind this move, as the fund said goodbye to about $5.4 million worth. These transactions are important to note, as total hedge fund interest fell by 2 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Lennar Corporation (NYSE:LEN) but similarly valued. These stocks are Energy Transfer L.P. (NYSE:ET), Church & Dwight Co., Inc. (NYSE:CHD), MarketAxess Holdings Inc. (NASDAQ:MKTX), Keysight Technologies Inc (NYSE:KEYS), Wipro Limited (NYSE:WIT), Entergy Corporation (NYSE:ETR), and The Trade Desk, Inc. (NASDAQ:TTD). This group of stocks’ market values are closest to LEN’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $581 million. That figure was $1693 million in LEN’s case. Keysight Technologies Inc (NYSE:KEYS) is the most popular stock in this table. On the other hand Wipro Limited (NYSE:WIT) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Lennar Corporation (NYSE:LEN) is more popular among hedge funds. Our overall hedge fund sentiment score for LEN is 78. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 returned 29.2% in 2020 through October 16th but still managed to beat the market by 19.7 percentage points. Hedge funds were also right about betting on LEN as the stock returned 38.1% since the end of June (through 10/16) 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.