Did Hedge Funds Make The Right Call On NVR, Inc. (NVR)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of NVR, Inc. (NYSE:NVR) based on that data and determine whether they were really smart about the stock.

NVR, Inc. (NYSE:NVR) has experienced an increase in support from the world’s most elite money managers in recent months. Our calculations also showed that NVR 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.

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’ 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 58 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.

Ric Dillon of Diamond Hill Capital

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. With all of this in mind we’re going to take a peek at the fresh hedge fund action regarding NVR, Inc. (NYSE:NVR).

How are hedge funds trading NVR, Inc. (NYSE:NVR)?

At the end of the first quarter, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards NVR over the last 18 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

The largest stake in NVR, Inc. (NYSE:NVR) was held by Diamond Hill Capital, which reported holding $248.8 million worth of stock at the end of September. It was followed by AQR Capital Management with a $90.8 million position. Other investors bullish on the company included Impala Asset Management, Renaissance Technologies, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Impala Asset Management allocated the biggest weight to NVR, Inc. (NYSE:NVR), around 10.4% of its 13F portfolio. Giverny Capital is also relatively very bullish on the stock, dishing out 4.54 percent of its 13F equity portfolio to NVR.

As industrywide interest jumped, key money managers have jumped into NVR, Inc. (NYSE:NVR) headfirst. Balyasny Asset Management, managed by Dmitry Balyasny, created the largest position in NVR, Inc. (NYSE:NVR). Balyasny Asset Management had $17.3 million invested in the company at the end of the quarter. Richard Gerson and Navroz D. Udwadia’s Falcon Edge Capital also initiated a $15.3 million position during the quarter. The other funds with brand new NVR positions are Ken Heebner’s Capital Growth Management, Daniel Lascano’s Lomas Capital Management, and Asad Rahman and Aman Kapadia’s Akaris Global Partners.

Let’s also examine hedge fund activity in other stocks similar to NVR, Inc. (NYSE:NVR). We will take a look at Open Text Corporation (NASDAQ:OTEX), ArcelorMittal (NYSE:MT), Tradeweb Markets Inc. (NASDAQ:TW), and Cable One Inc (NYSE:CABO). This group of stocks’ market values match NVR’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $382 million. That figure was $745 million in NVR’s case. Tradeweb Markets Inc. (NASDAQ:TW) is the most popular stock in this table. On the other hand ArcelorMittal (NYSE:MT) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks NVR, Inc. (NYSE:NVR) 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 NVR as the stock returned 26.8% 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.

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