Where Do Hedge Funds Stand On The New Home Company Inc (NWHM)?

Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow nearly 817 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is The New Home Company Inc (NYSE:NWHM), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

The New Home Company Inc (NYSE:NWHM) was in 7 hedge funds’ portfolios at the end of September. The all time high for this statistics is 8. NWHM has experienced an increase in hedge fund interest lately. There were 6 hedge funds in our database with NWHM positions at the end of the second quarter. Our calculations also showed that NWHM isn’t among the 30 most popular stocks among hedge funds (click for Q3 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 66 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.

David Siegel of Two Sigma Advisors

David Siegel of Two Sigma Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. With all of this in mind let’s take a gander at the fresh hedge fund action surrounding The New Home Company Inc (NYSE:NWHM).

What does smart money think about The New Home Company Inc (NYSE:NWHM)?

At the end of the third quarter, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards NWHM over the last 21 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in The New Home Company Inc (NYSE:NWHM) was held by Royce & Associates, which reported holding $6 million worth of stock at the end of September. It was followed by Portolan Capital Management with a $2.2 million position. Other investors bullish on the company included Gratia Capital, Renaissance Technologies, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Gratia Capital allocated the biggest weight to The New Home Company Inc (NYSE:NWHM), around 3.7% of its 13F portfolio. Portolan Capital Management is also relatively very bullish on the stock, setting aside 0.25 percent of its 13F equity portfolio to NWHM.

As industrywide interest jumped, specific money managers were leading the bulls’ herd. Portolan Capital Management, managed by George McCabe, created the largest position in The New Home Company Inc (NYSE:NWHM). Portolan Capital Management had $2.2 million invested in the company at the end of the quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as The New Home Company Inc (NYSE:NWHM) but similarly valued. These stocks are Siebert Financial Corp. (NASDAQ:SIEB), Ohio Valley Banc Corp. (NASDAQ:OVBC), Landmark Bancorp, Inc. (NASDAQ:LARK), Meridian Corporation (NASDAQ:MRBK), Delta Apparel, Inc. (NYSE:DLA), Chembio Diagnostics Inc (NASDAQ:CEMI), and Goodrich Petroleum Corporation (NYSE:GDP). This group of stocks’ market caps are similar to NWHM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SIEB 1 54 0
OVBC 1 688 0
LARK 2 3208 0
MRBK 3 5013 0
DLA 8 7230 1
CEMI 3 2994 -4
GDP 5 18855 -1
Average 3.3 5435 -0.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 3.3 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $10 million in NWHM’s case. Delta Apparel, Inc. (NYSE:DLA) is the most popular stock in this table. On the other hand Siebert Financial Corp. (NASDAQ:SIEB) is the least popular one with only 1 bullish hedge fund positions. The New Home Company Inc (NYSE:NWHM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NWHM is 75.1. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and beat the market again by 16 percentage points. Unfortunately NWHM wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on NWHM were disappointed as the stock returned 3.1% since the end of September (through 12/2) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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