We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds' top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Vista Outdoor Inc (NYSE:VSTO).
Vista Outdoor Inc (NYSE:VSTO) has seen a decrease in hedge fund interest of late. Our calculations also showed that VSTO isn't among the 30 most popular stocks among hedge funds (see the video below). 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 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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a peek at the fresh hedge fund action surrounding Vista Outdoor Inc (NYSE:VSTO).
What have hedge funds been doing with Vista Outdoor Inc (NYSE:VSTO)?
Heading into the third quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in VSTO over the last 16 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Vista Outdoor Inc (NYSE:VSTO) was held by Gates Capital Management, which reported holding $16.1 million worth of stock at the end of March. It was followed by D E Shaw with a $11.5 million position. Other investors bullish on the company included Renaissance Technologies, Mountain Lake Investment Management, and Millennium Management.
Because Vista Outdoor Inc (NYSE:VSTO) has faced a decline in interest from the smart money, we can see that there is a sect of hedge funds who were dropping their positions entirely in the second quarter. Intriguingly, Jon Bauer's Contrarian Capital dumped the largest investment of all the hedgies followed by Insider Monkey, totaling about $0.4 million in stock. Paul J. Isaac's fund, Arbiter Partners Capital Management, also sold off its stock, about $0.3 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 1 funds in the second quarter.
Let's now review hedge fund activity in other stocks similar to Vista Outdoor Inc (NYSE:VSTO). These stocks are Sterling Bancorp, Inc. (Southfield, MI) (NASDAQ:SBT), AquaVenture Holdings Limited (NYSE:WAAS), Catchmark Timber Trust Inc (NYSE:CTT), and FutureFuel Corp. (NYSE:FF). This group of stocks' market caps are closest to VSTO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SBT,6,15458,-1 WAAS,9,20008,-1 CTT,9,51055,0 FF,11,47387,-4 Average,8.75,33477,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $33 million. That figure was $72 million in VSTO's case. FutureFuel Corp. (NYSE:FF) is the most popular stock in this table. On the other hand Sterling Bancorp, Inc. (Southfield, MI) (NASDAQ:SBT) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Vista Outdoor Inc (NYSE:VSTO) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately VSTO wasn't nearly as popular as these 20 stocks and hedge funds that were betting on VSTO were disappointed as the stock returned -30.3% during the third 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 many of these stocks already outperformed the market in Q3.
Disclosure: None. This article was originally published at Insider Monkey.