World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients' money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It's not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It's also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.
Vista Outdoor Inc (NYSE:VSTO) was in 14 hedge funds' portfolios at the end of the fourth quarter of 2018. VSTO shareholders have witnessed a decrease in activity from the world's largest hedge funds in recent months. There were 19 hedge funds in our database with VSTO positions at the end of the previous quarter. Our calculations also showed that VSTO 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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's take a gander at the latest hedge fund action encompassing Vista Outdoor Inc (NYSE:VSTO).
How are hedge funds trading Vista Outdoor Inc (NYSE:VSTO)?
At the end of the fourth quarter, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -26% from the previous quarter. On the other hand, there were a total of 17 hedge funds with a bullish position in VSTO a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
More specifically, Fairholme (FAIRX) was the largest shareholder of Vista Outdoor Inc (NYSE:VSTO), with a stake worth $16.7 million reported as of the end of December. Trailing Fairholme (FAIRX) was D E Shaw, which amassed a stake valued at $12.5 million. Mountain Lake Investment Management, Arrowstreet Capital, and Renaissance Technologies were also very fond of the stock, giving the stock large weights in their portfolios.
Because Vista Outdoor Inc (NYSE:VSTO) has experienced bearish sentiment from hedge fund managers, it's easy to see that there is a sect of hedge funds that decided to sell off their positions entirely last quarter. It's worth mentioning that Joel Greenblatt's Gotham Asset Management dumped the largest position of all the hedgies monitored by Insider Monkey, comprising an estimated $1.4 million in stock, and Dmitry Balyasny's Balyasny Asset Management was right behind this move, as the fund cut about $0.3 million worth. These moves are interesting, as total hedge fund interest dropped by 5 funds last quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Vista Outdoor Inc (NYSE:VSTO) but similarly valued. These stocks are Principia Biopharma Inc. (NASDAQ:PRNB), Cohu, Inc. (NASDAQ:COHU), Rudolph Technologies Inc (NYSE:RTEC), and Heska Corp (NASDAQ:HSKA). This group of stocks' market values are similar to VSTO's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PRNB,12,212554,-3 COHU,9,33677,-6 RTEC,14,77992,-2 HSKA,12,38485,2 Average,11.75,90677,-2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $91 million. That figure was $56 million in VSTO's case. Rudolph Technologies Inc (NYSE:RTEC) is the most popular stock in this table. On the other hand Cohu, Inc. (NASDAQ:COHU) is the least popular one with only 9 bullish hedge fund positions. Vista Outdoor Inc (NYSE:VSTO) 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. 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. Unfortunately VSTO wasn't nearly as popular as these 15 stock and hedge funds that were betting on VSTO were disappointed as the stock returned -26.3% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.