The third quarter was a rough one for most investors, as fears of an interest rate hike in the U.S, a weakening economy in China, and a stagnant Europe, weighed heavily on the minds of investors. Both the S&P 500 and Russell 2000 sank as a result, with the Russell 2000, which is composed of smaller companies, being hit especially hard. This was primarily due to hedge funds, which are big supporters of small-cap stocks, pulling some of their capital out of the volatile markets during this time. Let’s look at how this market volatility affected the sentiment of hedge funds towards D.R. Horton, Inc. (NYSE:DHI), and what that likely means for the prospects of the company and its stock.
D.R. Horton, Inc. (NYSE:DHI) investors should pay attention to a decrease in activity from the world’s largest hedge funds of late. At the end of this article we will also compare DHI to other stocks including SL Green Realty Corp (NYSE:SLG), CBRE Group Inc (NYSE:CBG), and Newell Rubbermaid Inc. (NYSE:NWL) to get a better sense of its popularity.
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If you’d ask most investors, hedge funds are perceived as worthless, old investment vehicles of years past. While there are greater than 8000 funds trading today, We hone in on the leaders of this club, approximately 700 funds. It is estimated that this group of investors command most of the hedge fund industry’s total asset base, and by following their first-class investments, Insider Monkey has found numerous investment strategies that have historically outstripped Mr. Market. Insider Monkey’s small-cap hedge fund strategy surpassed the S&P 500 index by 12 percentage points per year for a decade in their back tests.
Now, we’re going to analyze the key action encompassing D.R. Horton, Inc. (NYSE:DHI).
Hedge fund activity in D.R. Horton, Inc. (NYSE:DHI)
At Q3’s end, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the second quarter. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Capital Growth Management, managed by Ken Heebner, holds the most valuable position in D.R. Horton, Inc. (NYSE:DHI). Capital Growth Management has a $266.4 million position in the stock, comprising 8.6% of its 13F portfolio. The second largest stake is held by Citadel Investment Group, managed by Ken Griffin, which holds a $212.2 million position; 0.2% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that hold long positions encompass Edgar Wachenheim’s Greenhaven Associates, Crispin Odey’s Odey Asset Management Group and Ross Margolies’s Stelliam Investment Management.
Due to the fact that D.R. Horton, Inc. (NYSE:DHI) has faced a declination in interest from hedge fund managers, it’s safe to say that there lies a certain “tier” of hedgies that decided to sell off their full holdings heading into Q4. At the top of the heap, George Soros’s Soros Fund Management dumped the biggest investment of the 700 funds watched by Insider Monkey, worth close to $76.5 million in stock. David Tepper’s fund, Appaloosa Management LP, also said goodbye to its stock, about $29.6 million worth. These moves are important to note, as total hedge fund interest fell by 2 funds heading into Q4.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as D.R. Horton, Inc. (NYSE:DHI) but similarly valued. These stocks are SL Green Realty Corp (NYSE:SLG), CBRE Group Inc (NYSE:CBG), Newell Rubbermaid Inc. (NYSE:NWL), and Fastenal Company (NASDAQ:FAST). This group of stocks’ market caps resemble DHI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SLG | 12 | 99631 | -8 |
| CBG | 32 | 1662629 | 0 |
| NWL | 27 | 468886 | 8 |
| FAST | 17 | 300642 | -2 |
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $633 million. That figure was $1,299 million in DHI’s case. CBRE Group Inc (NYSE:CBG) is the most popular stock in this table. On the other hand SL Green Realty Corp (NYSE:SLG) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks D.R. Horton, Inc. (NYSE:DHI) 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.
