At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Vivint Smart Home, Inc. (NYSE:VVNT).
Vivint Smart Home, Inc. (NYSE:VVNT) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 5 hedge funds' portfolios at the end of the third quarter of 2020. Our calculations also showed that VVNT isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare VVNT to other stocks including National Beverage Corp. (NASDAQ:FIZZ), The Howard Hughes Corporation (NYSE:HHC), and PTC Therapeutics, Inc. (NASDAQ:PTCT) to get a better sense of its popularity.
Video: 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 S&P 500 ETFs by 66 percentage points since March 2017 (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.
Ian Wace of Marshall Wace
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now we're going to go over the fresh hedge fund action surrounding Vivint Smart Home, Inc. (NYSE:VVNT).
What does smart money think about Vivint Smart Home, Inc. (NYSE:VVNT)?
At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in VVNT over the last 21 quarters. With hedge funds' sentiment swirling, there exists a select group of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
Among these funds, Citadel Investment Group held the most valuable stake in Vivint Smart Home, Inc. (NYSE:VVNT), which was worth $3.6 million at the end of the third quarter. On the second spot was Millennium Management which amassed $2.5 million worth of shares. Marshall Wace LLP, Citadel Investment Group, and Renaissance Technologies 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 Marshall Wace LLP allocated the biggest weight to Vivint Smart Home, Inc. (NYSE:VVNT), around 0.01% of its 13F portfolio. Millennium Management is also relatively very bullish on the stock, earmarking 0.0031 percent of its 13F equity portfolio to VVNT.
Seeing as Vivint Smart Home, Inc. (NYSE:VVNT) has witnessed bearish sentiment from hedge fund managers, it's safe to say that there were a few funds who were dropping their positions entirely heading into Q4. At the top of the heap, Derek C. Schrier's Indaba Capital Management dropped the largest position of the "upper crust" of funds followed by Insider Monkey, worth an estimated $2.4 million in stock. Highbridge Capital Management, also dropped its stock, about $2.3 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at hedge fund activity in other stocks similar to Vivint Smart Home, Inc. (NYSE:VVNT). These stocks are National Beverage Corp. (NASDAQ:FIZZ), The Howard Hughes Corporation (NYSE:HHC), PTC Therapeutics, Inc. (NASDAQ:PTCT), Balchem Corporation (NASDAQ:BCPC), Verint Systems Inc. (NASDAQ:VRNT), AAON, Inc. (NASDAQ:AAON), and Harmony Gold Mining Co. (NYSE:HMY). This group of stocks' market valuations match VVNT's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FIZZ,23,300383,2 HHC,31,858126,3 PTCT,25,209866,-6 BCPC,16,76494,-1 VRNT,27,428732,2 AAON,16,51732,1 HMY,10,57330,0 Average,21.1,283238,0.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.1 hedge funds with bullish positions and the average amount invested in these stocks was $283 million. That figure was $8 million in VVNT's case. The Howard Hughes Corporation (NYSE:HHC) is the most popular stock in this table. On the other hand Harmony Gold Mining Co. (NYSE:HMY) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Vivint Smart Home, Inc. (NYSE:VVNT) is even less popular than HMY. Our overall hedge fund sentiment score for VVNT is 12.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds clearly dropped the ball on VVNT 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on VVNT as the stock returned 28.3% since Q3 (through November 27th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.