“Market conditions are changing. The continued rise in interest rates suggests we are in the early stages of a bond bear market, which could intensify as central banks withdraw liquidity. The receding tide of liquidity will start to reveal more rocks beyond what has been exposed in emerging markets so far, and the value of a value discipline will be in avoiding the biggest capital-destroying rocks. If a rock emerges on the crowded shore of U.S. momentum, it could result in a major liquidity challenge, as momentum is often most intense on the downside as a crowded trade reverses. So investors are facing a large potential trade-off right now: continue to bet on the current dominance of momentum and the S&P 500, or bet on change and take an active value bet in names with attractive value and optionality, but with negative momentum,” said Clearbridge Investments in its market commentary. We aren’t sure whether long-term interest rates will top 5% and value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Toll Brothers Inc (NYSE:TOL).
Toll Brothers Inc (NYSE:TOL) investors should pay attention to an increase in activity from the world’s largest hedge funds lately. Our calculations also showed that TOL isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 18 percentage points since May 2014 through December 3, 2018 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to analyze the recent hedge fund action regarding Toll Brothers Inc (NYSE:TOL).
Hedge fund activity in Toll Brothers Inc (NYSE:TOL)
At the end of the third quarter, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 68% from one quarter earlier. On the other hand, there were a total of 28 hedge funds with a bullish position in TOL at the beginning of this year. So, let’s find out 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 $135.6 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $79.1 million worth of shares. Moreover, Millennium Management, Bridgewater Associates, and Marshall Wace LLP were also bullish on Toll Brothers Inc (NYSE:TOL), allocating a large percentage of their portfolios to this stock.
As aggregate interest increased, specific money managers have been driving this bullishness. Echo Street Capital Management, managed by Greg Poole, assembled the biggest position in Toll Brothers Inc (NYSE:TOL). Echo Street Capital Management had $29 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also made a $6 million investment in the stock during the quarter. The other funds with brand new TOL positions are Jonathan Barrett and Paul Segal’s Luminus Management, Joe DiMenna’s ZWEIG DIMENNA PARTNERS, and Dmitry Balyasny’s Balyasny Asset Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Toll Brothers Inc (NYSE:TOL) but similarly valued. We will take a look at NovoCure Limited (NASDAQ:NVCR), nVent Electric plc (NYSE:NVT), SLM Corp (NASDAQ:SLM), and Prosperity Bancshares, Inc. (NYSE:PB). This group of stocks’ market values are similar to TOL’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NVCR | 20 | 284799 | 3 |
| NVT | 29 | 1208395 | 5 |
| SLM | 19 | 596750 | 0 |
| PB | 6 | 73671 | -4 |
| Average | 18.5 | 540904 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $541 million. That figure was $512 million in TOL’s case. nVent Electric plc (NYSE:NVT) is the most popular stock in this table. On the other hand Prosperity Bancshares, Inc. (NYSE:PB) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Toll Brothers Inc (NYSE:TOL) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.
