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 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 8 percentage points so far in 2019. 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 Virco Mfg. Corporation (NASDAQ:VIRC).
Hedge fund interest in Virco Mfg. Corporation (NASDAQ:VIRC) 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 VIRC to other stocks including Verona Pharma plc (NASDAQ:VRNA), Patriot Transportation Holding Inc (NASDAQ:PATI), and Merrimack Pharmaceuticals Inc (NASDAQ:MACK) to get a better sense of its popularity.
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 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Jim Simons of RENAISSANCE TECHNOLOGIES
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a look at the fresh hedge fund action encompassing Virco Mfg. Corporation (NASDAQ:VIRC).
What does smart money think about Virco Mfg. Corporation (NASDAQ:VIRC)?
At Q3’s end, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in VIRC over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, David P. Cohen’s Minerva Advisors has the largest position in Virco Mfg. Corporation (NASDAQ:VIRC), worth close to $4 million, accounting for 2.2% of its total 13F portfolio. Sitting at the No. 2 spot is Mill Road Capital Management, managed by Thomas E. Lynch, which holds a $0.9 million position; the fund has 1.4% of its 13F portfolio invested in the stock. In terms of the portfolio weights assigned to each position Minerva Advisors allocated the biggest weight to Virco Mfg. Corporation (NASDAQ:VIRC), around 2.23% of its portfolio. Mill Road Capital Management is also relatively very bullish on the stock, earmarking 1.44 percent of its 13F equity portfolio to VIRC.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.
Let’s check out hedge fund activity in other stocks similar to Virco Mfg. Corporation (NASDAQ:VIRC). These stocks are Verona Pharma plc (NASDAQ:VRNA), Patriot Transportation Holding Inc (NASDAQ:PATI), Merrimack Pharmaceuticals Inc (NASDAQ:MACK), and Greenland Acquisition Corporation (NASDAQ:GLAC). This group of stocks’ market valuations match VIRC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VRNA | 3 | 12994 | -1 |
| PATI | 3 | 8659 | 0 |
| MACK | 4 | 8753 | -1 |
| GLAC | 6 | 6869 | 0 |
| Average | 4 | 9319 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 4 hedge funds with bullish positions and the average amount invested in these stocks was $9 million. That figure was $6 million in VIRC’s case. Greenland Acquisition Corporation (NASDAQ:GLAC) is the most popular stock in this table. On the other hand Verona Pharma plc (NASDAQ:VRNA) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Virco Mfg. Corporation (NASDAQ:VIRC) is even less popular than VRNA. Hedge funds dodged a bullet by taking a bearish stance towards VIRC. Our calculations showed that the top 20 most popular hedge fund stocks returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately VIRC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); VIRC investors were disappointed as the stock returned -4.4% during the fourth quarter (through 11/22) 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.