Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (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. How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Tri Pointe Group Inc (NYSE:TPH).
Tri Pointe Group Inc (NYSE:TPH) investors should pay attention to an increase in hedge fund interest in recent months. Our calculations also showed that TPH isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
To most investors, hedge funds are seen as slow, outdated financial tools of the past. While there are more than 8000 funds trading at present, Our experts look at the aristocrats of this club, around 850 funds. These money managers preside over bulk of the smart money’s total capital, and by observing their top picks, Insider Monkey has unearthed a number of investment strategies that have historically outperformed the market. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Christian Leone of Luxor Capital Group
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a look at the new hedge fund action regarding Tri Pointe Group Inc (NYSE:TPH).
What does smart money think about Tri Pointe Group Inc (NYSE:TPH)?
Heading into the first quarter of 2020, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from the previous quarter. On the other hand, there were a total of 15 hedge funds with a bullish position in TPH a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Echo Street Capital Management, managed by Greg Poole, holds the largest position in Tri Pointe Group Inc (NYSE:TPH). Echo Street Capital Management has a $52.4 million position in the stock, comprising 0.8% of its 13F portfolio. Coming in second is David S. Winter and David J. Millstone of 40 North Management, with a $45.6 million position; the fund has 3.2% of its 13F portfolio invested in the stock. Other professional money managers that hold long positions contain Dmitry Balyasny’s Balyasny Asset Management, Cliff Asness’s AQR Capital Management and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position 40 North Management allocated the biggest weight to Tri Pointe Group Inc (NYSE:TPH), around 3.22% of its 13F portfolio. Waterfront Capital Partners is also relatively very bullish on the stock, earmarking 1.01 percent of its 13F equity portfolio to TPH.
As one would reasonably expect, key hedge funds were leading the bulls’ herd. 40 North Management, managed by David S. Winter and David J. Millstone, created the biggest position in Tri Pointe Group Inc (NYSE:TPH). 40 North Management had $45.6 million invested in the company at the end of the quarter. Eduardo Abush’s Waterfront Capital Partners also made a $6.6 million investment in the stock during the quarter. The other funds with brand new TPH positions are Daniel Johnson’s Gillson Capital, Christian Leone’s Luxor Capital Group, and Jinghua Yan’s TwinBeech Capital.
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. We will take a look at Evoqua Water Technologies Corp. (NYSE:AQUA), BEST Inc. (NYSE:BEST), Flagstar Bancorp Inc (NYSE:FBC), and Ladder Capital Corp (NYSE:LADR). All of these stocks’ market caps are similar to TPH’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AQUA | 21 | 170056 | 5 |
| BEST | 10 | 23819 | -4 |
| FBC | 20 | 154140 | 5 |
| LADR | 11 | 61347 | -2 |
| Average | 15.5 | 102341 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $102 million. That figure was $319 million in TPH’s case. Evoqua Water Technologies Corp. (NYSE:AQUA) is the most popular stock in this table. On the other hand BEST Inc. (NYSE:BEST) is the least popular one with only 10 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 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. These stocks lost 13.0% in 2020 through April 6th and still beat the market by 4.2 percentage points. Unfortunately TPH wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TPH were disappointed as the stock returned -39.3% during the three months of 2020 (through April 6th) 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 most of these stocks already outperformed the market in 2020.
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.
