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Were Hedge Funds Right About Tri Pointe Group Inc (TPH)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Tri Pointe Group Inc (NYSE:TPH) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Tri Pointe Group Inc (NYSE:TPH) has seen a decrease in hedge fund interest lately. TPH was in 27 hedge funds’ portfolios at the end of the first quarter of 2020. There were 32 hedge funds in our database with TPH positions at the end of the previous quarter. Our calculations also showed that TPH isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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Ken Heebner of Capital Growth Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a glance at the fresh hedge fund action encompassing Tri Pointe Group Inc (NYSE:TPH).

Hedge fund activity in Tri Pointe Group Inc (NYSE:TPH)

At the end of the first quarter, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -16% from the fourth quarter of 2019. On the other hand, there were a total of 18 hedge funds with a bullish position in TPH a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Echo Street Capital Management held the most valuable stake in Tri Pointe Group Inc (NYSE:TPH), which was worth $39.7 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $23.8 million worth of shares. Capital Growth Management, D E Shaw, and Arrowstreet Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Capital Growth Management allocated the biggest weight to Tri Pointe Group Inc (NYSE:TPH), around 2.43% of its 13F portfolio. Echo Street Capital Management is also relatively very bullish on the stock, designating 0.85 percent of its 13F equity portfolio to TPH.

Since Tri Pointe Group Inc (NYSE:TPH) has witnessed falling interest from hedge fund managers, it’s easy to see that there lies a certain “tier” of hedgies who sold off their positions entirely by the end of the first quarter. Intriguingly, David S. Winter and David J. Millstone’s 40 North Management cut the largest stake of all the hedgies tracked by Insider Monkey, worth close to $45.6 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund cut about $32.9 million worth. These moves are important to note, as aggregate hedge fund interest fell by 5 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Tri Pointe Group Inc (NYSE:TPH) but similarly valued. These stocks are Masonite International Corp (NYSE:DOOR), Grupo Simec S.A.B. de C.V. (NYSE:SIM), Yext, Inc. (NYSE:YEXT), and Monmouth Real Estate Investment Corp. (NYSE:MNR). This group of stocks’ market valuations are closest to TPH’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DOOR 26 271479 5
SIM 1 1807 0
YEXT 9 18486 -4
MNR 12 61577 -2
Average 12 88337 -0.25

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 $88 million. That figure was $142 million in TPH’s case. Masonite International Corp (NYSE:DOOR) is the most popular stock in this table. On the other hand Grupo Simec S.A.B. de C.V. (NYSE:SIM) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Tri Pointe Group Inc (NYSE:TPH) is more popular among hedge funds. 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 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on TPH as the stock returned 67.5% in Q2 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.

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