We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money 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 (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Toll Brothers Inc (NYSE:TOL).
Toll Brothers Inc (NYSE:TOL) has experienced an increase in enthusiasm from smart money in recent months. Toll Brothers Inc (NYSE:TOL) was in 39 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 34. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that TOL 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.
Matthew Hulsizer of PEAK6 Capital
At Insider Monkey we scour multiple sources to uncover 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 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. 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 website to get excerpts of these letters in your inbox. Keeping this in mind let’s take a glance at the latest hedge fund action encompassing Toll Brothers Inc (NYSE:TOL).
How have hedgies been trading Toll Brothers Inc (NYSE:TOL)?
At second quarter’s end, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 95% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in TOL a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Greenhaven Associates was the largest shareholder of Toll Brothers Inc (NYSE:TOL), with a stake worth $165.3 million reported as of the end of June. Trailing Greenhaven Associates was Millennium Management, which amassed a stake valued at $38.4 million. Citadel Investment Group, Echo Street Capital Management, and Capital Growth 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 Greenhaven Associates allocated the biggest weight to Toll Brothers Inc (NYSE:TOL), around 3.66% of its 13F portfolio. Capital Growth Management is also relatively very bullish on the stock, earmarking 2.92 percent of its 13F equity portfolio to TOL.
As aggregate interest increased, key hedge funds have jumped into Toll Brothers Inc (NYSE:TOL) headfirst. Capital Growth Management, managed by Ken Heebner, initiated the most valuable position in Toll Brothers Inc (NYSE:TOL). Capital Growth Management had $25.1 million invested in the company at the end of the quarter. Robert Bishop’s Impala Asset Management also initiated a $16.7 million position during the quarter. The other funds with new positions in the stock are Matthew Hulsizer’s PEAK6 Capital Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s check out hedge fund activity in other stocks similar to Toll Brothers Inc (NYSE:TOL). These stocks are Essent Group Ltd (NYSE:ESNT), ONE Gas Inc (NYSE:OGS), Nevro Corp (NYSE:NVRO), Cameco Corporation (NYSE:CCJ), Cabot Microelectronics Corporation (NASDAQ:CCMP), Qualys Inc (NASDAQ:QLYS), and MSC Industrial Direct Co Inc (NYSE:MSM). All of these stocks’ market caps resemble TOL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ESNT | 29 | 260562 | 3 |
| OGS | 20 | 32804 | 4 |
| NVRO | 35 | 757082 | 4 |
| CCJ | 22 | 321965 | -2 |
| CCMP | 23 | 163401 | 7 |
| QLYS | 27 | 168061 | 10 |
| MSM | 30 | 389200 | 7 |
| Average | 26.6 | 299011 | 4.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.6 hedge funds with bullish positions and the average amount invested in these stocks was $299 million. That figure was $428 million in TOL’s case. Nevro Corp (NYSE:NVRO) is the most popular stock in this table. On the other hand ONE Gas Inc (NYSE:OGS) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Toll Brothers Inc (NYSE:TOL) is more popular among hedge funds. Our overall hedge fund sentiment score for TOL is 90. 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 returned 23% in 2020 through October 30th but still managed to beat the market by 20.1 percentage points. Hedge funds were also right about betting on TOL as the stock returned 30.5% since the end of June (through 10/30) 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.
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Disclosure: None. This article was originally published at Insider Monkey.
