“October lived up to its scary reputation—the S&P 500 falling in the month by the largest amount in the last 40 years, the only worse Octobers being ’08 and the Crash of ’87. For perspective, there have been only 5 occasions in those 40 years when the S&P 500 declined by greater than 20% from peak to trough. Other than the ’87 Crash, all were during recessions. There were 17 other instances, over the same time frame, when the market fell by over 10% but less than 20%. Furthermore, this is the 18th correction of 5% or more since the current bull market started in March ’09. Corrections are the norm. They can be healthy as they often undo market complacency—overbought levels—potentially allowing the market to base and move even higher.” This is how Trapeze Asset Management summarized the recent market moves in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.
Hedge fund interest in Verint Systems Inc. (NASDAQ:VRNT) 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 VRNT to other stocks including Aerojet Rocketdyne Holdings Inc (NYSE:AJRD), FS KKR Capital Corp. (NASDAQ:FSK), and Barnes Group Inc. (NYSE:B) to get a better sense of its popularity.
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.
Let’s take a look at the latest hedge fund action encompassing Verint Systems Inc. (NASDAQ:VRNT).
How have hedgies been trading Verint Systems Inc. (NASDAQ:VRNT)?
At Q4’s end, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2018. On the other hand, there were a total of 21 hedge funds with a bullish position in VRNT a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
More specifically, RGM Capital was the largest shareholder of Verint Systems Inc. (NASDAQ:VRNT), with a stake worth $97.3 million reported as of the end of September. Trailing RGM Capital was Fisher Asset Management, which amassed a stake valued at $88.1 million. GLG Partners, Impax Asset Management, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Verint Systems Inc. (NASDAQ:VRNT) has experienced falling interest from the smart money, it’s easy to see that there lies a certain “tier” of hedge funds who were dropping their positions entirely by the end of the third quarter. It’s worth mentioning that Phil Frohlich’s Prescott Group Capital Management said goodbye to the biggest position of the 700 funds monitored by Insider Monkey, worth about $1.9 million in stock. Frank Slattery’s fund, Symmetry Peak Management, also sold off its stock, about $0.9 million worth. These moves are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks similar to Verint Systems Inc. (NASDAQ:VRNT). We will take a look at Aerojet Rocketdyne Holdings Inc (NYSE:AJRD), FS KKR Capital Corp. (NYSE:FSK), Barnes Group Inc. (NYSE:B), and Orbotech Ltd. (NASDAQ:ORBK). This group of stocks’ market caps match VRNT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AJRD | 19 | 391598 | 0 |
| FSK | 20 | 173101 | 11 |
| B | 14 | 32255 | 1 |
| ORBK | 32 | 700155 | 5 |
| Average | 21.25 | 324277 | 4.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $324 million. That figure was $243 million in VRNT’s case. Orbotech Ltd. (NASDAQ:ORBK) is the most popular stock in this table. On the other hand Barnes Group Inc. (NYSE:B) is the least popular one with only 14 bullish hedge fund positions. Verint Systems Inc. (NASDAQ:VRNT) is not the least popular stock in this group but hedge fund interest is still below 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. A small number of hedge funds were also right about betting on VRNT as the stock returned 45.6% and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
