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Vista Outdoor Inc (VSTO): Hedge Funds Are Sticking Around

In this article we will check out the progression of hedge fund sentiment towards Vista Outdoor Inc (NYSE:VSTO) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

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.

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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Jeffrey Gates of Gates Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a look at the key hedge fund action surrounding Vista Outdoor Inc (NYSE:VSTO).

What have hedge funds been doing with Vista Outdoor Inc (NYSE:VSTO)?

Heading into the second quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the fourth quarter of 2019. By comparison, 17 hedge funds held shares or bullish call options in VSTO a year ago. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Among these funds, Gates Capital Management held the most valuable stake in Vista Outdoor Inc (NYSE:VSTO), which was worth $49.6 million at the end of the third quarter. On the second spot was D E Shaw which amassed $18.2 million worth of shares. Renaissance Technologies, Arrowstreet Capital, and Marshall Wace LLP 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 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, designating 3.27 percent of its 13F equity portfolio to VSTO.

Because Vista Outdoor Inc (NYSE:VSTO) has experienced declining sentiment from the smart money, it’s easy to see that there lies a certain “tier” of hedgies who sold off their entire stakes in the first quarter. At the top of the heap, Michael Gelband’s ExodusPoint Capital dumped the biggest investment of the 750 funds watched by Insider Monkey, comprising about $0.5 million in stock. Jonathan Soros’s fund, JS Capital, also cut its stock, about $0.3 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Vista Outdoor Inc (NYSE:VSTO) but similarly valued. 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 are similar to 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 13.4% in 2020 through June 22nd but still managed to beat the market by 15.9 percentage points. Hedge funds were also right about betting on VSTO as the stock returned 47.5% so far in Q2 (through June 22nd) 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.