“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.
Varonis Systems Inc (NASDAQ:VRNS) has seen a decrease in support from the world’s most elite money managers of late. VRNS was in 22 hedge funds’ portfolios at the end of the third quarter of 2018. There were 26 hedge funds in our database with VRNS positions at the end of the previous quarter. Our calculations also showed that vrns isn’t among the 30 most popular stocks among hedge funds.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 6.3% year to date (through December 3rd) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 18 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
We’re going to take a peek at the key hedge fund action regarding Varonis Systems Inc (NASDAQ:VRNS).
What have hedge funds been doing with Varonis Systems Inc (NASDAQ:VRNS)?
At the end of the third quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from one quarter earlier. On the other hand, there were a total of 22 hedge funds with a bullish position in VRNS at the beginning of this year. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
More specifically, Millennium Management was the largest shareholder of Varonis Systems Inc (NASDAQ:VRNS), with a stake worth $35.4 million reported as of the end of September. Trailing Millennium Management was Two Sigma Advisors, which amassed a stake valued at $19.8 million. Arrowstreet Capital, DSAM Partners, and Point72 Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Varonis Systems Inc (NASDAQ:VRNS) has experienced bearish sentiment from the entirety of the hedge funds we track, we can see that there was a specific group of funds who were dropping their positions entirely by the end of the third quarter. At the top of the heap, Principal Global Investors’s Columbus Circle Investors dropped the biggest stake of the 700 funds watched by Insider Monkey, valued at an estimated $11.2 million in stock. Spencer M. Waxman’s fund, Shannon River Fund Management, also sold off its stock, about $4.4 million worth. These moves are interesting, as total hedge fund interest dropped by 4 funds by the end of the third quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Varonis Systems Inc (NASDAQ:VRNS) but similarly valued. We will take a look at Covanta Holding Corporation (NYSE:CVA), Medpace Holdings, Inc. (NASDAQ:MEDP), Travelport Worldwide Ltd (NYSE:TVPT), and ABM Industries, Inc. (NYSE:ABM). This group of stocks’ market values are similar to VRNS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CVA | 19 | 104819 | 5 |
| MEDP | 26 | 286235 | 8 |
| TVPT | 23 | 253987 | 1 |
| ABM | 11 | 61035 | -3 |
| Average | 19.75 | 176519 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $177 million. That figure was $153 million in VRNS’s case. Medpace Holdings, Inc. (NASDAQ:MEDP) is the most popular stock in this table. On the other hand ABM Industries, Inc. (NYSE:ABM) is the least popular one with only 11 bullish hedge fund positions. Varonis Systems Inc (NASDAQ:VRNS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard MEDP might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
