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 823 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 June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Varex Imaging Corporation (NASDAQ:VREX) and determine whether the smart money was really smart about this stock.
Is Varex Imaging Corporation (NASDAQ:VREX) an excellent investment now? Hedge funds were taking an optimistic view. The number of bullish hedge fund bets increased by 3 lately. Varex Imaging Corporation (NASDAQ:VREX) was in 22 hedge funds' portfolios at the end of June. The all time high for this statistics is 22. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that VREX isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 56 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Richard S. Pzena of Pzena Investment Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we're going to take a look at the fresh hedge fund action surrounding Varex Imaging Corporation (NASDAQ:VREX).
Hedge fund activity in Varex Imaging Corporation (NASDAQ:VREX)
Heading into the third quarter of 2020, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 16% from one quarter earlier. On the other hand, there were a total of 20 hedge funds with a bullish position in VREX a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Pzena Investment Management was the largest shareholder of Varex Imaging Corporation (NASDAQ:VREX), with a stake worth $23.6 million reported as of the end of September. Trailing Pzena Investment Management was Fairpointe Capital, which amassed a stake valued at $10.1 million. Millennium Management, Royce & Associates, and Renaissance Technologies 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 Rutabaga Capital Management allocated the biggest weight to Varex Imaging Corporation (NASDAQ:VREX), around 2.08% of its 13F portfolio. Fairpointe Capital is also relatively very bullish on the stock, setting aside 1.47 percent of its 13F equity portfolio to VREX.
As industrywide interest jumped, key money managers were breaking ground themselves. Fairpointe Capital, managed by Thyra Zerhusen, assembled the biggest position in Varex Imaging Corporation (NASDAQ:VREX). Fairpointe Capital had $10.1 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also initiated a $6.7 million position during the quarter. The following funds were also among the new VREX investors: Michael Gelband's ExodusPoint Capital, Benjamin A. Smith's Laurion Capital Management, and David Harding's Winton Capital Management.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Varex Imaging Corporation (NASDAQ:VREX) but similarly valued. We will take a look at The Shyft Group, Inc. (NASDAQ:SHYF), Boingo Wireless Inc (NASDAQ:WIFI), NextCure, Inc. (NASDAQ:NXTC), SurModics, Inc. (NASDAQ:SRDX), Live Oak Bancshares Inc (NASDAQ:LOB), UP Fintech Holding Limited (NASDAQ:TIGR), and China Yuchai International Limited (NYSE:CYD). This group of stocks' market caps resemble VREX's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SHYF,18,66819,1 WIFI,15,178091,-1 NXTC,16,122234,2 SRDX,15,147028,3 LOB,10,25283,0 TIGR,4,1726,2 CYD,7,68173,1 Average,12.1,87051,1.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.1 hedge funds with bullish positions and the average amount invested in these stocks was $87 million. That figure was $70 million in VREX's case. The Shyft Group, Inc. (NASDAQ:SHYF) is the most popular stock in this table. On the other hand UP Fintech Holding Limited (NASDAQ:TIGR) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Varex Imaging Corporation (NASDAQ:VREX) is more popular among hedge funds. Our overall hedge fund sentiment score for VREX is 88. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. Unfortunately VREX wasn't nearly as popular as these 10 stocks and hedge funds that were betting on VREX were disappointed as the stock returned -16% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.