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 Vector Group Ltd (NYSE:VGR).
Vector Group Ltd (NYSE:VGR) was in 17 hedge funds' portfolios at the end of September. VGR has experienced a decrease in hedge fund interest in recent months. There were 18 hedge funds in our database with VGR positions at the end of the previous quarter. Our calculations also showed that VGR 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.
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 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.
[caption id="attachment_26073" align="alignnone" width="600"] Jim Simons of Renaissance Technologies[/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 take a look at the latest hedge fund action regarding Vector Group Ltd (NYSE:VGR).
What does smart money think about Vector Group Ltd (NYSE:VGR)?
At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from one quarter earlier. By comparison, 18 hedge funds held shares or bullish call options in VGR a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Vector Group Ltd (NYSE:VGR), with a stake worth $125.8 million reported as of the end of September. Trailing Renaissance Technologies was GLG Partners, which amassed a stake valued at $19.6 million. Cheyne Capital, Two Sigma Advisors, and Citadel Investment Group 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 Cheyne Capital allocated the biggest weight to Vector Group Ltd (NYSE:VGR), around 4.53% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, earmarking 0.11 percent of its 13F equity portfolio to VGR.
Seeing as Vector Group Ltd (NYSE:VGR) has faced a decline in interest from the entirety of the hedge funds we track, it's easy to see that there is a sect of fund managers who were dropping their entire stakes in the third quarter. It's worth mentioning that David E. Shaw's D E Shaw dropped the largest investment of all the hedgies tracked by Insider Monkey, comprising an estimated $2.4 million in stock. Paul Tudor Jones's fund, Tudor Investment Corp, also sold off its stock, about $0.5 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 1 funds in the third quarter.
Let's also examine hedge fund activity in other stocks similar to Vector Group Ltd (NYSE:VGR). These stocks are Edgewell Personal Care Company (NYSE:EPC), SPX Corporation (NYSE:SPXC), Noah Holdings Limited (NYSE:NOAH), and Resideo Technologies, Inc. (NYSE:REZI). This group of stocks' market values match VGR's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EPC,18,164888,-7 SPXC,18,77081,2 NOAH,19,219107,7 REZI,31,340130,2 Average,21.5,200302,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $200 million. That figure was $170 million in VGR's case. Resideo Technologies, Inc. (NYSE:REZI) is the most popular stock in this table. On the other hand Edgewell Personal Care Company (NYSE:EPC) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Vector Group Ltd (NYSE:VGR) is even less popular than EPC. Hedge funds clearly dropped the ball on VGR as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on VGR as the stock returned 12.8% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.