At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards The New Home Company Inc (NYSE:NWHM).
The New Home Company Inc (NYSE:NWHM) investors should pay attention to an increase in hedge fund interest lately. NWHM was in 8 hedge funds' portfolios at the end of March. There were 7 hedge funds in our database with NWHM holdings at the end of the previous quarter. Our calculations also showed that NWHM isn't among the 30 most popular stocks among hedge funds (click for Q1 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 58 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 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_255015" align="aligncenter" width="397"] Tom Brown of Second Curve Capital[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to take a peek at the new hedge fund action regarding The New Home Company Inc (NYSE:NWHM).
What have hedge funds been doing with The New Home Company Inc (NYSE:NWHM)?
At the end of the first quarter, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in NWHM over the last 18 quarters. With hedge funds' sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
The largest stake in The New Home Company Inc (NYSE:NWHM) was held by Royce & Associates, which reported holding $1.2 million worth of stock at the end of September. It was followed by Second Curve Capital with a $0.7 million position. Other investors bullish on the company included Gratia Capital, Millennium Management, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Second Curve Capital allocated the biggest weight to The New Home Company Inc (NYSE:NWHM), around 6.07% of its 13F portfolio. Gratia Capital is also relatively very bullish on the stock, earmarking 3.94 percent of its 13F equity portfolio to NWHM.
Now, specific money managers were breaking ground themselves. Two Sigma Advisors, managed by John Overdeck and David Siegel, assembled the biggest position in The New Home Company Inc (NYSE:NWHM). Two Sigma Advisors had $0 million invested in the company at the end of the quarter. Peter Muller's PDT Partners also made a $0 million investment in the stock during the quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as The New Home Company Inc (NYSE:NWHM) but similarly valued. These stocks are Immutep Limited (NASDAQ:IMMP), RealNetworks Inc (NASDAQ:RNWK), USA Truck, Inc. (NASDAQ:USAK), and Finjan Holdings, Inc. (NASDAQ:FNJN). This group of stocks' market values are closest to NWHM's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IMMP,3,278,2 RNWK,5,7169,-1 USAK,2,366,-1 FNJN,1,1917,-2 Average,2.75,2433,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 2.75 hedge funds with bullish positions and the average amount invested in these stocks was $2 million. That figure was $3 million in NWHM's case. RealNetworks Inc (NASDAQ:RNWK) is the most popular stock in this table. On the other hand Finjan Holdings, Inc. (NASDAQ:FNJN) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks The New Home Company Inc (NYSE:NWHM) is more popular among hedge funds. 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 12.2% in 2020 through June 17th but still managed to beat the market by 14.8 percentage points. Hedge funds were also right about betting on NWHM as the stock returned 162.8% so far in Q2 (through June 17th) 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.
Disclosure: None. This article was originally published at Insider Monkey.