Was The Smart Money Right About PulteGroup, Inc. (PHM)?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about PulteGroup, Inc. (NYSE:PHM) in this article.

PulteGroup, Inc. (NYSE:PHM) has seen a decrease in hedge fund sentiment recently. PulteGroup, Inc. (NYSE:PHM) was in 40 hedge funds’ portfolios at the end of December. The all time high for this statistic is 43. There were 43 hedge funds in our database with PHM positions at the end of the third quarter. Our calculations also showed that PHM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind we’re going to view the latest hedge fund action surrounding PulteGroup, Inc. (NYSE:PHM).

Do Hedge Funds Think PHM Is A Good Stock To Buy Now?

At the end of the fourth quarter, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the third quarter of 2020. The graph below displays the number of hedge funds with bullish position in PHM over the last 22 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, AQR Capital Management was the largest shareholder of PulteGroup, Inc. (NYSE:PHM), with a stake worth $165.8 million reported as of the end of December. Trailing AQR Capital Management was Long Pond Capital, which amassed a stake valued at $137.8 million. GLG Partners, Arrowstreet Capital, and Millennium Management 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 Long Pond Capital allocated the biggest weight to PulteGroup, Inc. (NYSE:PHM), around 4.6% of its 13F portfolio. Greenhaven Associates is also relatively very bullish on the stock, earmarking 1.55 percent of its 13F equity portfolio to PHM.

Judging by the fact that PulteGroup, Inc. (NYSE:PHM) has experienced bearish sentiment from the aggregate hedge fund industry, we can see that there lies a certain “tier” of funds that elected to cut their entire stakes last quarter. Intriguingly, Ken Heebner’s Capital Growth Management dumped the biggest stake of the 750 funds watched by Insider Monkey, comprising close to $24.8 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also sold off its stock, about $19.2 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 3 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to PulteGroup, Inc. (NYSE:PHM). We will take a look at Equity Lifestyle Properties, Inc. (NYSE:ELS), Lamb Weston Holdings, Inc. (NYSE:LW), Five9 Inc (NASDAQ:FIVN), Fidelity National Financial Inc (NYSE:FNF), Concho Resources Inc. (NYSE:CXO), WestRock Company (NYSE:WRK), and DENTSPLY SIRONA Inc. (NASDAQ:XRAY). All of these stocks’ market caps are closest to PHM’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 36 hedge funds with bullish positions and the average amount invested in these stocks was $1035 million. That figure was $1006 million in PHM’s case. Five9 Inc (NASDAQ:FIVN) is the most popular stock in this table. On the other hand Equity Lifestyle Properties, Inc. (NYSE:ELS) is the least popular one with only 24 bullish hedge fund positions. PulteGroup, Inc. (NYSE:PHM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PHM is 64.7. 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 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on PHM as the stock returned 37.5% since the end of Q4 (through 4/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.