Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 20% in 2019 (through September 30th). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of 24% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Vivint Solar Inc (NYSE:VSLR).
Hedge fund interest in Vivint Solar Inc (NYSE:VSLR) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare VSLR to other stocks including Sturm, Ruger & Company, Inc. (NYSE:RGR), PetIQ, Inc. (NASDAQ:PETQ), and AMC Entertainment Holdings Inc (NYSE:AMC) to get a better sense of its popularity. Our calculations also showed that VSLR 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.
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 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.
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 gander at the key hedge fund action surrounding Vivint Solar Inc (NYSE:VSLR).
How are hedge funds trading Vivint Solar Inc (NYSE:VSLR)?
At the end of the second quarter, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 13 hedge funds with a bullish position in VSLR a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Point72 Asset Management, managed by Steve Cohen, holds the number one position in Vivint Solar Inc (NYSE:VSLR). Point72 Asset Management has a $13.4 million position in the stock, comprising 0.1% of its 13F portfolio. The second largest stake is held by Till Bechtolsheimer of Arosa Capital Management, with a $11.6 million position; the fund has 1.8% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish consist of Israel Englander’s Millennium Management, Bernard Lambilliotte’s Ecofin Ltd and D. E. Shaw’s D E Shaw.
Seeing as Vivint Solar Inc (NYSE:VSLR) has faced declining sentiment from the entirety of the hedge funds we track, we can see that there is a sect of fund managers who sold off their entire stakes by the end of the second quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dumped the biggest stake of the “upper crust” of funds tracked by Insider Monkey, totaling close to $0.7 million in stock. Andrew Weiss’s fund, Weiss Asset Management, also dropped its stock, about $0.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks similar to Vivint Solar Inc (NYSE:VSLR). These stocks are Sturm, Ruger & Company, Inc. (NYSE:RGR), PetIQ, Inc. (NASDAQ:PETQ), AMC Entertainment Holdings Inc (NYSE:AMC), and RPT Realty (NYSE:RPT). This group of stocks’ market values resemble VSLR’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $74 million. That figure was $37 million in VSLR’s case. AMC Entertainment Holdings Inc (NYSE:AMC) is the most popular stock in this table. On the other hand RPT Realty (NYSE:RPT) is the least popular one with only 9 bullish hedge fund positions. Vivint Solar Inc (NYSE:VSLR) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 VSLR wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); VSLR investors were disappointed as the stock returned -10.4% 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 so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.