Should You Avoid Tri Pointe Group Inc (TPH)?

Reymerlyn Martin

Updated Tue, Dec 18, 2018, 10:00 PM

We at Insider Monkey have gone over 700 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of September 30th. In this article, we look at what those funds think of Tri Pointe Group Inc (NYSE:TPH) based on that data.

Tri Pointe Group Inc (NYSE:TPH) shareholders have witnessed a decrease in hedge fund interest of late. TPH was in 17 hedge funds' portfolios at the end of September. There were 22 hedge funds in our database with TPH holdings at the end of the previous quarter. Our calculations also showed that TPH isn't among the 30 most popular stocks among hedge funds.

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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Let's take a peek at the recent hedge fund action encompassing Tri Pointe Group Inc (NYSE:TPH).

What have hedge funds been doing with Tri Pointe Group Inc (NYSE:TPH)?

At Q3's end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -23% from the second quarter of 2018. By comparison, 22 hedge funds held shares or bullish call options in TPH heading into this year. 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, Greenhaven Associates held the most valuable stake in Tri Pointe Group Inc (NYSE:TPH), which was worth $62.6 million at the end of the third quarter. On the second spot was Carlson Capital which amassed $12.4 million worth of shares. Moreover, Fisher Asset Management, Third Avenue Management, and Royce & Associates were also bullish on Tri Pointe Group Inc (NYSE:TPH), allocating a large percentage of their portfolios to this stock.

Seeing as Tri Pointe Group Inc (NYSE:TPH) has faced bearish sentiment from the aggregate hedge fund industry, it's safe to say that there lies a certain "tier" of hedge funds who sold off their positions entirely last quarter. Interestingly, Israel Englander's Millennium Management dropped the biggest position of the 700 funds monitored by Insider Monkey, worth close to $6 million in stock, and Principal Global Investors's Columbus Circle Investors was right behind this move, as the fund said goodbye to about $5.8 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 5 funds last quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Tri Pointe Group Inc (NYSE:TPH) but similarly valued. We will take a look at Belmond Ltd (NYSE:BEL), Kronos Worldwide, Inc. (NYSE:KRO), Ladder Capital Corp (NYSE:LADR), and Nuveen California Quality Municipal Income Fund (NYSE:NAC). This group of stocks' market valuations are similar to TPH's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BEL,16,252781,2 KRO,17,51942,-1 LADR,17,114418,-3 NAC,2,678,-3 Average,13,104955,-1.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $105 million. That figure was $117 million in TPH's case. Kronos Worldwide, Inc. (NYSE:KRO) is the most popular stock in this table. On the other hand Nuveen California Quality Municipal Income Fund (NYSE:NAC) is the least popular one with only 2 bullish hedge fund positions. Tri Pointe Group Inc (NYSE:TPH) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. In this regard KRO might be a better candidate to consider a long position.

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

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