2018’s fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 41.3% in 2019 and outperformed the S&P 500 ETF by more than 10 percentage points. In this article we will study how hedge fund sentiment towards Tri Pointe Group Inc (NYSE:TPH) changed during the third quarter and how the stock performed in comparison to hedge fund consensus stocks.
Is Tri Pointe Group Inc (NYSE:TPH) a bargain? Prominent investors are getting more optimistic. The number of long hedge fund positions rose by 7 recently. Our calculations also showed that TPH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). TPH was in 24 hedge funds’ portfolios at the end of the third quarter of 2019. There were 17 hedge funds in our database with TPH holdings at the end of the previous quarter.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Bruce Kovner of Caxton Associates LP
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind we’re going to take a glance at the key hedge fund action surrounding Tri Pointe Group Inc (NYSE:TPH).
How have hedgies been trading Tri Pointe Group Inc (NYSE:TPH)?
Heading into the fourth quarter of 2019, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 41% from the previous quarter. The graph below displays the number of hedge funds with bullish position in TPH over the last 17 quarters. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Greg Poole’s Echo Street Capital Management has the most valuable position in Tri Pointe Group Inc (NYSE:TPH), worth close to $46.9 million, corresponding to 0.8% of its total 13F portfolio. On Echo Street Capital Management’s heels is Edgar Wachenheim of Greenhaven Associates, with a $33.4 million position; the fund has 0.7% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism consist of Israel Englander’s Millennium Management, Dmitry Balyasny’s Balyasny Asset Management and Ken Fisher’s Fisher Asset Management. In terms of the portfolio weights assigned to each position Third Avenue Management allocated the biggest weight to Tri Pointe Group Inc (NYSE:TPH), around 0.82% of its 13F portfolio. Echo Street Capital Management is also relatively very bullish on the stock, designating 0.79 percent of its 13F equity portfolio to TPH.
Now, some big names were breaking ground themselves. PEAK6 Capital Management, managed by Matthew Hulsizer, created the biggest position in Tri Pointe Group Inc (NYSE:TPH). PEAK6 Capital Management had $2.2 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $1.5 million position during the quarter. The following funds were also among the new TPH investors: Bruce Kovner’s Caxton Associates, Ray Dalio’s Bridgewater Associates, and David Harding’s Winton Capital Management.
Let’s go over hedge fund activity in other stocks similar to Tri Pointe Group Inc (NYSE:TPH). These stocks are LegacyTexas Financial Group Inc (NASDAQ:LTXB), Pretium Resources Inc (NYSE:PVG), First Merchants Corporation (NASDAQ:FRME), and Myriad Genetics, Inc. (NASDAQ:MYGN). This group of stocks’ market caps are closest to TPH’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LTXB | 10 | 92773 | -5 |
| PVG | 22 | 121252 | 0 |
| FRME | 10 | 91788 | 0 |
| MYGN | 13 | 240082 | -2 |
| Average | 13.75 | 136474 | -1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $136 million. That figure was $230 million in TPH’s case. Pretium Resources Inc (NYSE:PVG) is the most popular stock in this table. On the other hand LegacyTexas Financial Group Inc (NASDAQ:LTXB) 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. Hedge funds were also right about betting on TPH as the stock returned 42.5% in 2019 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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.
