In this article we will check out the progression of hedge fund sentiment towards Toll Brothers Inc (NYSE:TOL) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Toll Brothers Inc (NYSE:TOL) has seen an increase in hedge fund interest lately. Toll Brothers Inc (NYSE:TOL) was in 32 hedge funds’ portfolios at the end of June. The all time high for this statistic is 39. Our calculations also showed that TOL isn’t among the 30 most popular stocks among hedge funds (click 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’ 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 79 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.
Ricky Sandler of Eminence Capital
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Do Hedge Funds Think TOL Is A Good Stock To Buy Now?
At the end of the second quarter, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TOL over the last 24 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Greenhaven Associates held the most valuable stake in Toll Brothers Inc (NYSE:TOL), which was worth $297.4 million at the end of the second quarter. On the second spot was Iridian Asset Management which amassed $125.1 million worth of shares. Southpoint Capital Advisors, Eminence Capital, and Junto Capital Management 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 Greenhaven Associates allocated the biggest weight to Toll Brothers Inc (NYSE:TOL), around 8.69% of its 13F portfolio. Iridian Asset Management is also relatively very bullish on the stock, setting aside 2.19 percent of its 13F equity portfolio to TOL.
Consequently, specific money managers were leading the bulls’ herd. Iridian Asset Management, managed by David Cohen and Harold Levy, initiated the most outsized position in Toll Brothers Inc (NYSE:TOL). Iridian Asset Management had $125.1 million invested in the company at the end of the quarter. Alexander Mitchell’s Scopus Asset Management also initiated a $6.4 million position during the quarter. The other funds with new positions in the stock are D. E. Shaw’s D E Shaw, Jinghua Yan’s TwinBeech Capital, and Greg Eisner’s Engineers Gate Manager.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Toll Brothers Inc (NYSE:TOL) but similarly valued. These stocks are Cullen/Frost Bankers, Inc. (NYSE:CFR), Axalta Coating Systems Ltd (NYSE:AXTA), Digital Turbine Inc (NASDAQ:APPS), Ascendis Pharma A/S (NASDAQ:ASND), Brooks Automation, Inc. (NASDAQ:BRKS), Freshpet Inc (NASDAQ:FRPT), and Harley-Davidson, Inc. (NYSE:HOG). All of these stocks’ market caps are similar to TOL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CFR | 13 | 32297 | 2 |
| AXTA | 47 | 1489747 | 4 |
| APPS | 30 | 325569 | 8 |
| ASND | 29 | 2290305 | 1 |
| BRKS | 32 | 510367 | 7 |
| FRPT | 28 | 270573 | 9 |
| HOG | 37 | 1121681 | 9 |
| Average | 30.9 | 862934 | 5.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.9 hedge funds with bullish positions and the average amount invested in these stocks was $863 million. That figure was $800 million in TOL’s case. Axalta Coating Systems Ltd (NYSE:AXTA) is the most popular stock in this table. On the other hand Cullen/Frost Bankers, Inc. (NYSE:CFR) is the least popular one with only 13 bullish hedge fund positions. Toll Brothers Inc (NYSE:TOL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TOL is 59.6. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15th and still beat the market by 4.5 percentage points. Hedge funds were also right about betting on TOL as the stock returned 2% since the end of Q2 (through 10/15) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
