"Market conditions are changing. The continued rise in interest rates suggests we are in the early stages of a bond bear market, which could intensify as central banks withdraw liquidity. The receding tide of liquidity will start to reveal more rocks beyond what has been exposed in emerging markets so far, and the value of a value discipline will be in avoiding the biggest capital-destroying rocks. If a rock emerges on the crowded shore of U.S. momentum, it could result in a major liquidity challenge, as momentum is often most intense on the downside as a crowded trade reverses. So investors are facing a large potential trade-off right now: continue to bet on the current dominance of momentum and the S&P 500, or bet on change and take an active value bet in names with attractive value and optionality, but with negative momentum," said Clearbridge Investments in its market commentary. We aren't sure whether long-term interest rates will top 5% and value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Century Communities, Inc (NYSE:CCS).
Is Century Communities, Inc (NYSE:CCS) worth your attention right now? The best stock pickers are becoming less confident. The number of bullish hedge fund bets were trimmed by 7 lately. Our calculations also showed that CCS isn't among the 30 most popular stocks among hedge funds. CCS was in 15 hedge funds' portfolios at the end of December. There were 22 hedge funds in our database with CCS holdings at the end of the previous quarter.
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' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Let's take a peek at the new hedge fund action surrounding Century Communities, Inc (NYSE:CCS).
How are hedge funds trading Century Communities, Inc (NYSE:CCS)?
Heading into the first quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -32% from the previous quarter. On the other hand, there were a total of 21 hedge funds with a bullish position in CCS a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Long Pond Capital, managed by John Khoury, holds the largest position in Century Communities, Inc (NYSE:CCS). Long Pond Capital has a $45 million position in the stock, comprising 1.8% of its 13F portfolio. Coming in second is Oaktree Capital Management, led by Howard Marks, holding a $31.4 million position; 0.6% of its 13F portfolio is allocated to the stock. Other peers with similar optimism contain Jeffrey Hinkle's Shoals Capital Management, David Keidan's Buckingham Capital Management and Matthew Lindenbaum's Basswood Capital.
Because Century Communities, Inc (NYSE:CCS) has faced falling interest from hedge fund managers, we can see that there lies a certain "tier" of fund managers who were dropping their positions entirely by the end of the third quarter. Interestingly, George Baxter's Sabrepoint Capital said goodbye to the biggest stake of the "upper crust" of funds monitored by Insider Monkey, totaling close to $18.4 million in stock, and Tom Wilcox's Cider Mill Investments was right behind this move, as the fund cut about $5.4 million worth. These transactions are interesting, as total hedge fund interest was cut by 7 funds by the end of the third quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Century Communities, Inc (NYSE:CCS) but similarly valued. These stocks are Turning Point Brands, Inc. (NYSE:TPB), CooTek (Cayman) Inc. (NYSE:CTK), First Mid-Illinois Bancshares, Inc. (NASDAQ:FMBH), and Heritage-Crystal Clean, Inc. (NASDAQ:HCCI). This group of stocks' market valuations match CCS's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TPB,10,41037,0 CTK,1,311,-5 FMBH,4,7809,2 HCCI,11,74624,0 Average,6.5,30945,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.5 hedge funds with bullish positions and the average amount invested in these stocks was $31 million. That figure was $138 million in CCS's case. Heritage-Crystal Clean, Inc. (NASDAQ:HCCI) is the most popular stock in this table. On the other hand CooTek (Cayman) Inc. (NYSE:CTK) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Century Communities, Inc (NYSE:CCS) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on CCS as the stock returned 42.2% 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.