Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds. What do these smart investors think about Meritage Homes Corp (NYSE:MTH)?
Meritage Homes Corp (NYSE:MTH) shareholders have witnessed an increase in hedge fund sentiment lately. MTH was in 25 hedge funds’ portfolios at the end of September. There were 15 hedge funds in our database with MTH holdings at the end of the previous quarter. Our calculations also showed that MTH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ken Fisher of Fisher Asset Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Keeping this in mind let’s take a gander at the latest hedge fund action encompassing Meritage Homes Corp (NYSE:MTH).
Hedge fund activity in Meritage Homes Corp (NYSE:MTH)
Heading into the fourth quarter of 2019, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 67% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MTH over the last 17 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
Among these funds, Fisher Asset Management held the most valuable stake in Meritage Homes Corp (NYSE:MTH), which was worth $104.7 million at the end of the third quarter. On the second spot was Capital Growth Management which amassed $73.2 million worth of shares. RR Partners, GLG Partners, and Citadel Investment Group 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 RR Partners allocated the biggest weight to Meritage Homes Corp (NYSE:MTH), around 7.1% of its 13F portfolio. Capital Growth Management is also relatively very bullish on the stock, dishing out 5.6 percent of its 13F equity portfolio to MTH.
As industrywide interest jumped, some big names were leading the bulls’ herd. Capital Growth Management, managed by Ken Heebner, created the most outsized position in Meritage Homes Corp (NYSE:MTH). Capital Growth Management had $73.2 million invested in the company at the end of the quarter. Robert Bishop’s Impala Asset Management also made a $15.5 million investment in the stock during the quarter. The other funds with brand new MTH positions are Andrew Sandler’s Sandler Capital Management, Renaissance Technologies, and Paul Marshall and Ian Wace’s Marshall Wace.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Meritage Homes Corp (NYSE:MTH) but similarly valued. These stocks are Acacia Communications, Inc. (NASDAQ:ACIA), Fluor Corporation (NYSE:FLR), Brooks Automation, Inc. (NASDAQ:BRKS), and Brandywine Realty Trust (NYSE:BDN). This group of stocks’ market caps match MTH’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ACIA | 25 | 507691 | -3 |
| FLR | 18 | 210283 | -3 |
| BRKS | 12 | 153378 | -1 |
| BDN | 17 | 121356 | 3 |
| Average | 18 | 248177 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $248 million. That figure was $361 million in MTH’s case. Acacia Communications, Inc. (NASDAQ:ACIA) is the most popular stock in this table. On the other hand Brooks Automation, Inc. (NASDAQ:BRKS) is the least popular one with only 12 bullish hedge fund positions. Meritage Homes Corp (NYSE:MTH) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on MTH as the stock returned 66.4% in 2019 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
