We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Lennar Corporation (NYSE:LEN).
Is Lennar Corporation (NYSE:LEN) an exceptional investment now? Hedge funds are taking a bearish view. The number of long hedge fund bets were cut by 1 recently. Our calculations also showed that LEN isn't among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 40 percentage points since May 2014 through May 30, 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let's go over the fresh hedge fund action surrounding Lennar Corporation (NYSE:LEN).
Hedge fund activity in Lennar Corporation (NYSE:LEN)
At Q1's end, a total of 61 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -2% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards LEN over the last 15 quarters. So, let's see 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 Lennar Corporation (NYSE:LEN), which was worth $459.2 million at the end of the first quarter. On the second spot was Eminence Capital which amassed $273.4 million worth of shares. Moreover, D1 Capital Partners, Brave Warrior Capital, and Long Pond Capital were also bullish on Lennar Corporation (NYSE:LEN), allocating a large percentage of their portfolios to this stock.
Seeing as Lennar Corporation (NYSE:LEN) has experienced a decline in interest from the entirety of the hedge funds we track, logic holds that there is a sect of hedge funds that decided to sell off their full holdings in the third quarter. It's worth mentioning that Clint Carlson's Carlson Capital dropped the biggest position of the 700 funds followed by Insider Monkey, comprising about $76.5 million in stock. Jim Simons's fund, Renaissance Technologies, also dropped its stock, about $63 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 1 funds in the third quarter.
Let's now review hedge fund activity in other stocks similar to Lennar Corporation (NYSE:LEN). We will take a look at KeyCorp (NYSE:KEY), SK Telecom Co., Ltd. (NYSE:SKM), BioMarin Pharmaceutical Inc. (NASDAQ:BMRN), and Magna International Inc. (NYSE:MGA). This group of stocks' market values are closest to LEN's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KEY,32,496942,-1 SKM,6,73101,0 BMRN,41,1908601,4 MGA,27,523999,5 Average,26.5,750661,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $751 million. That figure was $2310 million in LEN's case. BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) 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 6 bullish hedge fund positions. Compared to these stocks Lennar Corporation (NYSE:LEN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on LEN as the stock returned 2.6% during the same period 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.