We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Verra Mobility Corporation (NASDAQ:VRRM).
Is Verra Mobility Corporation (NASDAQ:VRRM) a cheap investment right now? Money managers are taking a pessimistic view. The number of bullish hedge fund positions were cut by 6 in recent months. Our calculations also showed that VRRM isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to 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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Dmitry Balyasny of Balyasny Asset Managemnet
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to take a glance at the fresh hedge fund action encompassing Verra Mobility Corporation (NASDAQ:VRRM).
How are hedge funds trading Verra Mobility Corporation (NASDAQ:VRRM)?
At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -29% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in VRRM over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Cardinal Capital held the most valuable stake in Verra Mobility Corporation (NASDAQ:VRRM), which was worth $46.7 million at the end of the third quarter. On the second spot was Crescent Park Management which amassed $36.5 million worth of shares. Sunriver Management, SCW Capital Management, and Balyasny Asset Management 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 SCW Capital Management allocated the biggest weight to Verra Mobility Corporation (NASDAQ:VRRM), around 8.7% of its 13F portfolio. Crescent Park Management is also relatively very bullish on the stock, earmarking 7.53 percent of its 13F equity portfolio to VRRM.
Since Verra Mobility Corporation (NASDAQ:VRRM) has faced bearish sentiment from the aggregate hedge fund industry, logic holds that there exists a select few hedgies that slashed their full holdings heading into Q4. Intriguingly, Jeffrey Jacobowitz’s Simcoe Capital Management dumped the biggest position of all the hedgies watched by Insider Monkey, valued at an estimated $15.8 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace was right behind this move, as the fund said goodbye to about $14.8 million worth. These moves are interesting, as total hedge fund interest was cut by 6 funds heading into Q4.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Verra Mobility Corporation (NASDAQ:VRRM) but similarly valued. We will take a look at Commscope Holding Company Inc (NASDAQ:COMM), Sprouts Farmers Market Inc (NASDAQ:SFM), SVMK Inc. (NASDAQ:SVMK), and Arena Pharmaceuticals, Inc. (NASDAQ:ARNA). All of these stocks’ market caps are closest to VRRM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| COMM | 23 | 791413 | 3 |
| SFM | 23 | 325458 | 1 |
| SVMK | 24 | 277503 | 1 |
| ARNA | 29 | 293133 | 0 |
| Average | 24.75 | 421877 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $422 million. That figure was $147 million in VRRM’s case. Arena Pharmaceuticals, Inc. (NASDAQ:ARNA) is the most popular stock in this table. On the other hand Commscope Holding Company Inc (NASDAQ:COMM) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks Verra Mobility Corporation (NASDAQ:VRRM) is even less popular than COMM. Hedge funds dodged a bullet by taking a bearish stance towards VRRM. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately VRRM wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); VRRM investors were disappointed as the stock returned 4.3% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
