We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 835 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of December 31st. In this article we look at what those investors think of Varonis Systems Inc (NASDAQ:VRNS).
Varonis Systems Inc (NASDAQ:VRNS) was in 18 hedge funds' portfolios at the end of the fourth quarter of 2019. VRNS has seen a decrease in activity from the world's largest hedge funds of late. There were 25 hedge funds in our database with VRNS holdings at the end of the previous quarter. Our calculations also showed that VRNS isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 S&P 500 ETFs by 41 percentage points since March 2017 (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.
[caption id="attachment_674067" align="aligncenter" width="400"] Gil Simon of SoMa Equity Partners[/caption]
With all of this in mind let's review the fresh hedge fund action surrounding Varonis Systems Inc (NASDAQ:VRNS).
How are hedge funds trading Varonis Systems Inc (NASDAQ:VRNS)?
Heading into the first quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -28% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards VRNS over the last 18 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Varonis Systems Inc (NASDAQ:VRNS) was held by Cadian Capital, which reported holding $145.7 million worth of stock at the end of September. It was followed by SoMa Equity Partners with a $86.6 million position. Other investors bullish on the company included Atalan Capital, Tremblant Capital, and Bloom Tree Partners. In terms of the portfolio weights assigned to each position North Run Capital allocated the biggest weight to Varonis Systems Inc (NASDAQ:VRNS), around 12.37% of its 13F portfolio. Cadian Capital is also relatively very bullish on the stock, setting aside 6.44 percent of its 13F equity portfolio to VRNS.
Seeing as Varonis Systems Inc (NASDAQ:VRNS) has faced declining sentiment from the aggregate hedge fund industry, we can see that there was a specific group of hedgies that elected to cut their full holdings in the third quarter. Interestingly, Brandon Haley's Holocene Advisors dropped the biggest stake of all the hedgies watched by Insider Monkey, valued at an estimated $22.4 million in stock, and Sander Gerber's Hudson Bay Capital Management was right behind this move, as the fund dropped about $9.6 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 7 funds in the third quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Varonis Systems Inc (NASDAQ:VRNS) but similarly valued. These stocks are SSR Mining Inc. (NASDAQ:SSRM), Livongo Health, Inc. (NASDAQ:LVGO), FGL Holdings (NYSE:FG), and MakeMyTrip Limited (NASDAQ:MMYT). This group of stocks' market values are closest to VRNS's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SSRM,16,229804,1 LVGO,18,100042,2 FG,17,162275,-8 MMYT,14,71965,4 Average,16.25,141022,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $141 million. That figure was $455 million in VRNS's case. Livongo Health, Inc. (NASDAQ:LVGO) is the most popular stock in this table. On the other hand MakeMyTrip Limited (NASDAQ:MMYT) is the least popular one with only 14 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately VRNS wasn't nearly as popular as these 20 stocks and hedge funds that were betting on VRNS were disappointed as the stock returned -26.8% during the same time period 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 many of these stocks already outperformed the market so far this year. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.