Should I Buy Vector Group Ltd (VGR)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Vector Group Ltd (NYSE:VGR) and determine whether hedge funds skillfully traded this stock.

Vector Group Ltd (NYSE:VGR) has seen an increase in support from the world’s most elite money managers in recent months. Vector Group Ltd (NYSE:VGR) was in 18 hedge funds’ portfolios at the end of June. The all time high for this statistics is 22. There were 16 hedge funds in our database with VGR positions at the end of the first quarter. Our calculations also showed that VGR isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David Siegel of Two Sigma Advisors

David Siegel of Two Sigma Advisors

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 are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we’re going to review the fresh hedge fund action encompassing Vector Group Ltd (NYSE:VGR).

What does smart money think about Vector Group Ltd (NYSE:VGR)?

Heading into the third quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in VGR over the last 20 quarters. So, let’s review 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 $97.9 million reported as of the end of September. Trailing Renaissance Technologies was GLG Partners, which amassed a stake valued at $11.7 million. Orbis Investment Management, Two Sigma Advisors, and Holocene Advisors 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 Renaissance Technologies allocated the biggest weight to Vector Group Ltd (NYSE:VGR), around 0.08% of its 13F portfolio. Orbis Investment Management is also relatively very bullish on the stock, designating 0.06 percent of its 13F equity portfolio to VGR.

Consequently, specific money managers have been driving this bullishness. Engineers Gate Manager, managed by Greg Eisner, established the largest position in Vector Group Ltd (NYSE:VGR). Engineers Gate Manager had $0.5 million invested in the company at the end of the quarter. Jonathan Soros’s JS Capital also made a $0.4 million investment in the stock during the quarter. The other funds with brand new VGR positions are David Harding’s Winton Capital Management, Jinghua Yan’s TwinBeech Capital, and Israel Englander’s Millennium Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Vector Group Ltd (NYSE:VGR) but similarly valued. We will take a look at Cactus, Inc. (NYSE:WHD), WestAmerica Bancorp. (NASDAQ:WABC), Lions Gate Entertainment Corporation (NYSE:LGF-A), BioTelemetry, Inc. (NASDAQ:BEAT), USANA Health Sciences, Inc. (NYSE:USNA), Adient plc (NYSE:ADNT), and Adaptimmune Therapeutics plc (NASDAQ:ADAP). This group of stocks’ market caps are closest to VGR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WHD 22 134050 4
WABC 12 29747 4
LGF-A 23 260345 0
BEAT 16 35163 4
USNA 19 214237 6
ADNT 35 341229 3
ADAP 19 831196 8
Average 20.9 263710 4.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.9 hedge funds with bullish positions and the average amount invested in these stocks was $264 million. That figure was $125 million in VGR’s case. Adient plc (NYSE:ADNT) is the most popular stock in this table. On the other hand WestAmerica Bancorp. (NASDAQ:WABC) is the least popular one with only 12 bullish hedge fund positions. Vector Group Ltd (NYSE:VGR) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for VGR is 44.6. 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. 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 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 gained 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately VGR wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); VGR investors were disappointed as the stock returned -1.8% in 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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