Were Hedge Funds Right About Dumping NVR, Inc. (NVR) Before Coronavirus?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 835 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of December 31st, 2019. 0

NVR, Inc. (NYSE:NVR) shareholders have witnessed a decrease in hedge fund interest lately. NVR was in 30 hedge funds’ portfolios at the end of December. There were 38 hedge funds in our database with NVR holdings at the end of the previous quarter. Our calculations also showed that NVR isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).

Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

To most traders, hedge funds are assumed to be slow, outdated financial tools of years past. While there are greater than 8000 funds with their doors open at the moment, Our experts choose to focus on the aristocrats of this group, approximately 850 funds. These money managers oversee the lion’s share of all hedge funds’ total asset base, and by keeping an eye on their inimitable investments, Insider Monkey has formulated many investment strategies that have historically beaten the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Ric Dillon of Diamond Hill Capital

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to go over the key hedge fund action surrounding NVR, Inc. (NYSE:NVR).

What have hedge funds been doing with NVR, Inc. (NYSE:NVR)?

At the end of the fourth quarter, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -21% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NVR over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Diamond Hill Capital held the most valuable stake in NVR, Inc. (NYSE:NVR), which was worth $364.4 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $128 million worth of shares. Impala Asset Management, Citadel Investment Group, and Renaissance Technologies 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 Impala Asset Management allocated the biggest weight to NVR, Inc. (NYSE:NVR), around 7.26% of its 13F portfolio. Giverny Capital is also relatively very bullish on the stock, earmarking 5.2 percent of its 13F equity portfolio to NVR.

Since NVR, Inc. (NYSE:NVR) has faced bearish sentiment from hedge fund managers, it’s safe to say that there exists a select few money managers who were dropping their full holdings in the third quarter. It’s worth mentioning that Michael Gelband’s ExodusPoint Capital said goodbye to the largest investment of all the hedgies monitored by Insider Monkey, worth an estimated $11 million in stock. Louis Bacon’s fund, Moore Global Investments, also cut its stock, about $10.4 million worth. These moves are interesting, as aggregate hedge fund interest fell by 8 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as NVR, Inc. (NYSE:NVR) but similarly valued. These stocks are Phillips 66 Partners LP (NYSE:PSXP), Hologic, Inc. (NASDAQ:HOLX), Okta, Inc. (NASDAQ:OKTA), and Akamai Technologies, Inc. (NASDAQ:AKAM). All of these stocks’ market caps are similar to NVR’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.25 hedge funds with bullish positions and the average amount invested in these stocks was $828 million. That figure was $1060 million in NVR’s case. Hologic, Inc. (NASDAQ:HOLX) is the most popular stock in this table. On the other hand Phillips 66 Partners LP (NYSE:PSXP) is the least popular one with only 5 bullish hedge fund positions. NVR, Inc. (NYSE:NVR) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately NVR wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NVR investors were disappointed as the stock returned -39% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.

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