Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients' money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds. In this article we are going to take a look at smart money sentiment towards Verisign, Inc. (NASDAQ:VRSN).
Verisign, Inc. (NASDAQ:VRSN) investors should pay attention to a decrease in enthusiasm from smart money recently. Our calculations also showed that VRSN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 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 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.
[caption id="attachment_208077" align="aligncenter" width="450"] Warren Buffett of Berkshire Hathaway[/caption]
We leave no stone unturned when looking for the next great investment idea. For example 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. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. Keeping this in mind we're going to review the new hedge fund action surrounding Verisign, Inc. (NASDAQ:VRSN).
Hedge fund activity in Verisign, Inc. (NASDAQ:VRSN)
At Q3's end, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in VRSN 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.
Among these funds, Berkshire Hathaway held the most valuable stake in Verisign, Inc. (NASDAQ:VRSN), which was worth $2443.3 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $1562.3 million worth of shares. D E Shaw, Cantillon Capital Management, and AQR Capital 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 Atalan Capital allocated the biggest weight to Verisign, Inc. (NASDAQ:VRSN), around 4.44% of its 13F portfolio. Cantillon Capital Management is also relatively very bullish on the stock, setting aside 2.78 percent of its 13F equity portfolio to VRSN.
Judging by the fact that Verisign, Inc. (NASDAQ:VRSN) has experienced a decline in interest from the entirety of the hedge funds we track, we can see that there exists a select few funds that decided to sell off their full holdings heading into Q4. At the top of the heap, Gabriel Plotkin's Melvin Capital Management dropped the largest investment of the 750 funds followed by Insider Monkey, valued at an estimated $73.2 million in stock, and Dmitry Balyasny's Balyasny Asset Management was right behind this move, as the fund dropped about $18.9 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 2 funds heading into Q4.
Let's now review hedge fund activity in other stocks similar to Verisign, Inc. (NASDAQ:VRSN). These stocks are Corning Incorporated (NYSE:GLW), Telefonica Brasil SA (NYSE:VIV), Interactive Brokers Group, Inc. (NASDAQ:IBKR), and Microchip Technology Incorporated (NASDAQ:MCHP). This group of stocks' market caps resemble VRSN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GLW,27,203363,1 VIV,13,92351,1 IBKR,24,1030551,0 MCHP,29,1167981,3 Average,23.25,623562,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $624 million. That figure was $5568 million in VRSN's case. Microchip Technology Incorporated (NASDAQ:MCHP) is the most popular stock in this table. On the other hand Telefonica Brasil SA (NYSE:VIV) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Verisign, Inc. (NASDAQ:VRSN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately VRSN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on VRSN were disappointed as the stock returned 29.8% so far in 2019 (through 12/23) and trailed 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 65 percent of these stocks already outperformed the market in 2019. 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.