We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Taylor Morrison Home Corp (NYSE:TMHC) and determine whether hedge funds skillfully traded this stock.
Taylor Morrison Home Corp (NYSE:TMHC) investors should pay attention to an increase in hedge fund interest in recent months. Taylor Morrison Home Corp (NYSE:TMHC) was in 33 hedge funds’ portfolios at the end of June. The all time high for this statistics is 28. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 28 hedge funds in our database with TMHC positions at the end of the first quarter. Our calculations also showed that TMHC isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Bill Miller of Miller Value Partners
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. Cannabis stocks are roaring back in 2020, which is why we are also checking out this under-the-radar stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. Now let’s take a glance at the fresh hedge fund action encompassing Taylor Morrison Home Corp (NYSE:TMHC).
Hedge fund activity in Taylor Morrison Home Corp (NYSE:TMHC)
At second quarter’s end, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in TMHC over the last 20 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Oaktree Capital Management was the largest shareholder of Taylor Morrison Home Corp (NYSE:TMHC), with a stake worth $124.1 million reported as of the end of September. Trailing Oaktree Capital Management was Miller Value Partners, which amassed a stake valued at $66.9 million. Capital Growth Management, Dendur Capital, and Basswood Capital 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 Dendur Capital allocated the biggest weight to Taylor Morrison Home Corp (NYSE:TMHC), around 10.22% of its 13F portfolio. Capital Growth Management is also relatively very bullish on the stock, earmarking 3.61 percent of its 13F equity portfolio to TMHC.
Now, specific money managers have been driving this bullishness. SG Capital Management, managed by Ken Grossman and Glen Schneider, assembled the most outsized position in Taylor Morrison Home Corp (NYSE:TMHC). SG Capital Management had $7 million invested in the company at the end of the quarter. Brad Farber’s Atika Capital also initiated a $2.3 million position during the quarter. The other funds with brand new TMHC positions are Donald Sussman’s Paloma Partners, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Michael Gelband’s ExodusPoint Capital.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Taylor Morrison Home Corp (NYSE:TMHC) but similarly valued. These stocks are UMB Financial Corporation (NASDAQ:UMBF), Crocs, Inc. (NASDAQ:CROX), Ovintiv Inc. (NYSE:OVV), Brookfield Business Partners L.P. (NYSE:BBU), TreeHouse Foods Inc. (NYSE:THS), Vonage Holdings Corp. (NASDAQ:VG), and Apellis Pharmaceuticals, Inc. (NASDAQ:APLS). This group of stocks’ market caps are similar to TMHC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| UMBF | 15 | 69356 | 0 |
| CROX | 37 | 634166 | 12 |
| OVV | 16 | 99529 | -3 |
| BBU | 3 | 1285 | 1 |
| THS | 32 | 223246 | 4 |
| VG | 30 | 257523 | 5 |
| APLS | 29 | 563976 | -1 |
| Average | 23.1 | 264154 | 2.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.1 hedge funds with bullish positions and the average amount invested in these stocks was $264 million. That figure was $370 million in TMHC’s case. Crocs, Inc. (NASDAQ:CROX) is the most popular stock in this table. On the other hand Brookfield Business Partners L.P. (NYSE:BBU) is the least popular one with only 3 bullish hedge fund positions. Taylor Morrison Home Corp (NYSE:TMHC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TMHC is 84.1. 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. 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 gained 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Hedge funds were also right about betting on TMHC as the stock returned 22% since Q2 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.
