Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards NVR, Inc. (NYSE:NVR).
Is NVR a good stock to buy now? The smart money was becoming hopeful. The number of bullish hedge fund bets moved up by 3 lately. NVR, Inc. (NYSE:NVR) was in 42 hedge funds' portfolios at the end of September. The all time high for this statistic is 39. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that NVR isn't among the 30 most popular stocks among hedge funds (click for Q3 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.
In the eyes of most traders, hedge funds are seen as underperforming, old financial vehicles of yesteryear. While there are greater than 8000 funds with their doors open at present, Our researchers choose to focus on the masters of this club, about 850 funds. These money managers have their hands on the lion's share of the hedge fund industry's total asset base, and by watching their first-class picks, Insider Monkey has identified a few investment strategies that have historically outstripped the market. Insider Monkey's flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .
John Armitage Egerton Capital
John Armitage of Egerton Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. Now let's analyze the fresh hedge fund action encompassing NVR, Inc. (NYSE:NVR).
Do Hedge Funds Think NVR Is A Good Stock To Buy Now?
At third quarter's end, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards NVR over the last 21 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
More specifically, Diamond Hill Capital was the largest shareholder of NVR, Inc. (NYSE:NVR), with a stake worth $401 million reported as of the end of September. Trailing Diamond Hill Capital was Impala Asset Management, which amassed a stake valued at $84.3 million. Egerton Capital Limited, Millennium Management, and AQR Capital 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 Impala Asset Management allocated the biggest weight to NVR, Inc. (NYSE:NVR), around 8.5% of its 13F portfolio. Ogborne Capital is also relatively very bullish on the stock, earmarking 7.22 percent of its 13F equity portfolio to NVR.
Now, key money managers have been driving this bullishness. Egerton Capital Limited, managed by John Armitage, assembled the most valuable position in NVR, Inc. (NYSE:NVR). Egerton Capital Limited had $79.4 million invested in the company at the end of the quarter. Brad Dunkley and Blair Levinsky's Waratah Capital Advisors also initiated a $10.6 million position during the quarter. The following funds were also among the new NVR investors: Phil Frohlich's Prescott Group Capital Management, Robert Pitts's Steadfast Capital Management, and Anand More's SAYA Management.
Let's now take a look at hedge fund activity in other stocks similar to NVR, Inc. (NYSE:NVR). We will take a look at CarMax Inc (NYSE:KMX), Altice USA, Inc. (NYSE:ATUS), Steris Plc (NYSE:STE), Ingersoll Rand Inc. (NYSE:IR), SK Telecom Co., Ltd. (NYSE:SKM), Qorvo Inc (NASDAQ:QRVO), and Warner Music Group Corp. (NASDAQ:WMG). All of these stocks' market caps are closest to NVR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KMX,54,1449835,8 ATUS,62,3526439,5 STE,30,676397,-10 IR,26,758110,-5 SKM,4,111261,-4 QRVO,51,1668362,0 WMG,20,662192,-11 Average,35.3,1264657,-2.4 [/table]
As you can see these stocks had an average of 35.3 hedge funds with bullish positions and the average amount invested in these stocks was $1265 million. That figure was $1142 million in NVR's case. Altice USA, Inc. (NYSE:ATUS) is the most popular stock in this table. On the other hand SK Telecom Co., Ltd. (NYSE:SKM) is the least popular one with only 4 bullish hedge fund positions. NVR, Inc. (NYSE:NVR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NVR is 70.8. 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. This is a slightly positive signal but 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 percentage points. These stocks gained 32.9% in 2020 through December 8th and beat the market again by 16.2 percentage points. Unfortunately NVR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on NVR were disappointed as the stock returned -3.8% since the end of September (through 12/8) 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 many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
