Hedge Funds Dipping Their Toes Back Into Vistra Corp. (VST)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Vistra Corp. (NYSE:VST) and determine whether the smart money was really smart about this stock.

Vistra Corp. (NYSE:VST) was in 42 hedge funds’ portfolios at the end of June. The all time high for this statistics is 49. VST shareholders have witnessed an increase in hedge fund sentiment of late. There were 39 hedge funds in our database with VST holdings at the end of March. Our calculations also showed that VST 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.

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 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 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.

Howard Marks of Oaktree Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. With all of this in mind we’re going to take a gander at the key hedge fund action surrounding Vistra Corp. (NYSE:VST).

How are hedge funds trading Vistra Corp. (NYSE:VST)?

At the end of June, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the first quarter of 2020. By comparison, 39 hedge funds held shares or bullish call options in VST a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Oaktree Capital Management, managed by Howard Marks, holds the biggest position in Vistra Corp. (NYSE:VST). Oaktree Capital Management has a $563.8 million position in the stock, comprising 12.5% of its 13F portfolio. The second largest stake is held by Steven Tananbaum of GoldenTree Asset Management, with a $147.2 million position; 18% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors that are bullish encompass Marc Lasry’s Avenue Capital, John M. Angelo and Michael L. Gordon’s Angelo Gordon & Co and Renaissance Technologies. In terms of the portfolio weights assigned to each position Avenue Capital allocated the biggest weight to Vistra Corp. (NYSE:VST), around 78.82% of its 13F portfolio. GoldenTree Asset Management is also relatively very bullish on the stock, earmarking 18.04 percent of its 13F equity portfolio to VST.

As industrywide interest jumped, key hedge funds were breaking ground themselves. Adage Capital Management, managed by Phill Gross and Robert Atchinson, created the most valuable position in Vistra Corp. (NYSE:VST). Adage Capital Management had $14 million invested in the company at the end of the quarter. Brian Olson, Baehyun Sung, and Jamie Waters’s Blackstart Capital also made a $6.4 million investment in the stock during the quarter. The other funds with brand new VST positions are Christian Leone’s Luxor Capital Group, Donald Sussman’s Paloma Partners, and Anand Parekh’s Alyeska Investment Group.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Vistra Corp. (NYSE:VST) but similarly valued. These stocks are MGM Growth Properties LLC (NYSE:MGP), Kinross Gold Corporation (NYSE:KGC), PTC Inc (NASDAQ:PTC), Dropbox, Inc. (NASDAQ:DBX), Autohome Inc (NYSE:ATHM), Banco de Chile (NYSE:BCH), and Lennox International Inc. (NYSE:LII). This group of stocks’ market valuations are similar to VST’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.1 hedge funds with bullish positions and the average amount invested in these stocks was $725 million. That figure was $1562 million in VST’s case. Dropbox, Inc. (NASDAQ:DBX) is the most popular stock in this table. On the other hand Banco de Chile (NYSE:BCH) is the least popular one with only 3 bullish hedge fund positions. Vistra Corp. (NYSE:VST) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for VST is 74.3. 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 positive signal but 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately VST wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on VST were disappointed as the stock returned 3.3% during the same time period 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 many of these stocks already outperformed the market so far this year.

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