It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 15 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated a return of 19.7% during the first 2.5 months of 2019 (vs. 13.1% gain for SPY), with 93% of these stocks outperforming the benchmark. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Vivint Solar Inc (NYSE:VSLR).
Vivint Solar Inc (NYSE:VSLR) was in 16 hedge funds’ portfolios at the end of the fourth quarter of 2018. VSLR investors should be aware of an increase in hedge fund interest recently. There were 10 hedge funds in our database with VSLR holdings at the end of the previous quarter. Our calculations also showed that VSLR isn’t among the 30 most popular stocks among hedge funds.
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 market by 32 percentage points since May 2014 through March 12, 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to go over the fresh hedge fund action encompassing Vivint Solar Inc (NYSE:VSLR).
How have hedgies been trading Vivint Solar Inc (NYSE:VSLR)?
Heading into the first quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 60% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards VSLR over the last 14 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Point72 Asset Management was the largest shareholder of Vivint Solar Inc (NYSE:VSLR), with a stake worth $6.5 million reported as of the end of December. Trailing Point72 Asset Management was Luminus Management, which amassed a stake valued at $5.7 million. Arosa Capital Management, D E Shaw, and Perella Weinberg Partners were also very fond of the stock, giving the stock large weights in their portfolios.
Now, specific money managers were leading the bulls’ herd. Luminus Management, managed by Jonathan Barrett and Paul Segal, created the most outsized position in Vivint Solar Inc (NYSE:VSLR). Luminus Management had $5.7 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also made a $1.3 million investment in the stock during the quarter. The following funds were also among the new VSLR investors: Israel Englander’s Millennium Management, Peter J. Hark’s Shelter Harbor Advisors, and Anand Parekh’s Alyeska Investment Group.
Let’s now take a look at hedge fund activity in other stocks similar to Vivint Solar Inc (NYSE:VSLR). We will take a look at Construction Partners, Inc. (NASDAQ:ROAD), Health Insurance Innovations Inc (NASDAQ:HIIQ), Och-Ziff Capital Management Group LLC (NYSE:OZM), and CONSOL Coal Resources LP (NYSE:CCR). This group of stocks’ market values match VSLR’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ROAD | 8 | 8991 | -1 |
| HIIQ | 18 | 156364 | 1 |
| OZM | 9 | 82213 | 0 |
| CCR | 5 | 97486 | 1 |
| Average | 10 | 86264 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $86 million. That figure was $23 million in VSLR’s case. Health Insurance Innovations Inc (NASDAQ:HIIQ) is the most popular stock in this table. On the other hand CONSOL Coal Resources LP (NYSE:CCR) is the least popular one with only 5 bullish hedge fund positions. Vivint Solar Inc (NYSE:VSLR) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on VSLR as the stock returned 50.7% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
