The first quarter was a breeze as Powell pivoted, and China seemed eager to reach a deal with Trump. Both the S&P 500 and Russell 2000 delivered very strong gains as a result, with the Russell 2000, which is composed of smaller companies, outperforming the large-cap stocks slightly during the first quarter. Unfortunately sentiment shifted in May and August as this time China pivoted and Trump put more pressure on China by increasing tariffs. Fourth quarter brought optimism to the markets and hedge funds' top 20 stock picks performed spectacularly in this volatile environment. These stocks delivered a total gain of 37.4% through the end of November, vs. a gain of 27.5% for the S&P 500 ETF. In this article we will look at how this market volatility affected the sentiment of hedge funds towards Vitamin Shoppe Inc (NYSE:VSI), and what that likely means for the prospects of the company and its stock.
Is Vitamin Shoppe Inc (NYSE:VSI) worth your attention right now? Prominent investors are taking a bullish view. The number of bullish hedge fund positions inched up by 1 lately. Our calculations also showed that VSI isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 stocks that are in our short portfolio.
[caption id="attachment_26794" align="aligncenter" width="359"] Paul Tudor Jones of Tudor Investment Corp[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's go over the latest hedge fund action encompassing Vitamin Shoppe Inc (NYSE:VSI).
What does smart money think about Vitamin Shoppe Inc (NYSE:VSI)?
At the end of the third quarter, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in VSI a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Vitamin Shoppe Inc (NYSE:VSI) was held by Shah Capital Management, which reported holding $27.2 million worth of stock at the end of September. It was followed by Water Island Capital with a $3.1 million position. Other investors bullish on the company included D E Shaw, Carlson Capital, and GAMCO Investors. In terms of the portfolio weights assigned to each position Shah Capital Management allocated the biggest weight to Vitamin Shoppe Inc (NYSE:VSI), around 14.67% of its 13F portfolio. Water Island Capital is also relatively very bullish on the stock, dishing out 0.19 percent of its 13F equity portfolio to VSI.
With a general bullishness amongst the heavyweights, key money managers were leading the bulls' herd. Water Island Capital, managed by John Orrico, created the largest position in Vitamin Shoppe Inc (NYSE:VSI). Water Island Capital had $3.1 million invested in the company at the end of the quarter. Clint Carlson's Carlson Capital also made a $1.3 million investment in the stock during the quarter. The following funds were also among the new VSI investors: Paul Tudor Jones's Tudor Investment Corp, Gavin Saitowitz and Cisco J. del Valle's Springbok Capital, and Donald Sussman's Paloma Partners.
Let's check out hedge fund activity in other stocks similar to Vitamin Shoppe Inc (NYSE:VSI). We will take a look at Marrone Bio Innovations Inc (NASDAQ:MBII), First United Corp (NASDAQ:FUNC), Avadel Pharmaceuticals plc (NASDAQ:AVDL), and Provident Financial Holdings, Inc. (NASDAQ:PROV). This group of stocks' market caps are closest to VSI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MBII,2,14993,-1 FUNC,6,16016,0 AVDL,7,30296,2 PROV,1,9382,0 Average,4,17672,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 4 hedge funds with bullish positions and the average amount invested in these stocks was $18 million. That figure was $39 million in VSI's case. Avadel Pharmaceuticals plc (NASDAQ:AVDL) is the most popular stock in this table. On the other hand Provident Financial Holdings, Inc. (NASDAQ:PROV) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Vitamin Shoppe Inc (NYSE:VSI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately VSI wasn't nearly as popular as these 20 stocks and hedge funds that were betting on VSI were disappointed as the stock returned -0.6% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.