Did Hedge Funds Make The Right Call On Vista Outdoor Inc (VSTO) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Vista Outdoor Inc (NYSE:VSTO) based on that data and determine whether they were really smart about the stock.

Hedge fund interest in Vista Outdoor Inc (NYSE:VSTO) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Monarch Casino & Resort, Inc. (NASDAQ:MCRI), Seritage Growth Properties (NYSE:SRG), and Gores Metropoulos, Inc. (NASDAQ:GMHI) to gather more data points. Our calculations also showed that VSTO isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 S&P 500 ETFs by more than 58 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. 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.


Cliff Asness of AQR Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s check out the recent hedge fund action regarding Vista Outdoor Inc (NYSE:VSTO).

What does smart money think about Vista Outdoor Inc (NYSE:VSTO)?

At the end of the first quarter, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards VSTO over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is VSTO A Good Stock To Buy?

The largest stake in Vista Outdoor Inc (NYSE:VSTO) was held by Gates Capital Management, which reported holding $49.6 million worth of stock at the end of September. It was followed by D E Shaw with a $18.2 million position. Other investors bullish on the company included Renaissance Technologies, Arrowstreet Capital, and Marshall Wace LLP. In terms of the portfolio weights assigned to each position Mountain Lake Investment Management allocated the biggest weight to Vista Outdoor Inc (NYSE:VSTO), around 6.53% of its 13F portfolio. Gates Capital Management is also relatively very bullish on the stock, earmarking 3.27 percent of its 13F equity portfolio to VSTO.

Due to the fact that Vista Outdoor Inc (NYSE:VSTO) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there is a sect of hedgies that slashed their positions entirely in the first quarter. At the top of the heap, Michael Gelband’s ExodusPoint Capital said goodbye to the largest investment of the “upper crust” of funds monitored by Insider Monkey, totaling close to $0.5 million in stock. Jonathan Soros’s fund, JS Capital, also sold off its stock, about $0.3 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks similar to Vista Outdoor Inc (NYSE:VSTO). These stocks are Monarch Casino & Resort, Inc. (NASDAQ:MCRI), Seritage Growth Properties (NYSE:SRG), Gores Metropoulos, Inc. (NASDAQ:GMHI), and Colony Credit Real Estate, Inc. (NYSE:CLNC). All of these stocks’ market caps match VSTO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MCRI 15 75297 3
SRG 17 85126 2
GMHI 16 134362 -1
CLNC 11 8665 3
Average 14.75 75863 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $76 million. That figure was $122 million in VSTO’s case. Seritage Growth Properties (NYSE:SRG) is the most popular stock in this table. On the other hand Colony Credit Real Estate, Inc. (NYSE:CLNC) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Vista Outdoor Inc (NYSE:VSTO) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 18.6% in 2020 through July 27th but still managed to beat the market by 17.1 percentage points. Hedge funds were also right about betting on VSTO as the stock returned 79.3% since Q1 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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Disclosure: None. This article was originally published at Insider Monkey.