At Insider Monkey we follow nearly 750 of the best-performing investors and even though many of them lost money in the last couple of months of 2018 (some actually delivered very strong returns), the history teaches us that over the long-run they still manage to beat the market, which is why it can be profitable for us to imitate their activity. Of course, even the best money managers can sometimes get it wrong, but following some of their picks gives us a better chance to outperform the crowd than picking a random stock and this is where our research comes in.
Verso Corporation (NYSE:VRS) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 22 hedge funds' portfolios at the end of December. At the end of this article we will also compare VRS to other stocks including QAD Inc. (NASDAQ:QADA), Unit Corporation (NYSE:UNT), and Nexeo Solutions, Inc. (NASDAQ:NXEO) to get a better sense of its popularity.
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 market by 32 percentage points since May 2014 through March 12, 2019 (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 our short portfolio.
Let's take a glance at the new hedge fund action surrounding Verso Corporation (NYSE:VRS).
How are hedge funds trading Verso Corporation (NYSE:VRS)?
At Q4's end, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in VRS over the last 14 quarters. With the smart money's capital changing hands, there exists a few noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, John R. Wagner's SCW Capital Management has the biggest position in Verso Corporation (NYSE:VRS), worth close to $26.6 million, corresponding to 21.1% of its total 13F portfolio. The second largest stake is held by Oaktree Capital Management, led by Howard Marks, holding a $21.5 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish contain Jonathan Kolatch's Redwood Capital Management, Cliff Asness's AQR Capital Management and Noam Gottesman's GLG Partners.
Because Verso Corporation (NYSE:VRS) has experienced a decline in interest from the aggregate hedge fund industry, it's easy to see that there was a specific group of money managers who sold off their entire stakes by the end of the third quarter. Interestingly, Jim Simons's Renaissance Technologies said goodbye to the largest investment of the 700 funds monitored by Insider Monkey, totaling close to $8.9 million in stock, and Lee Ainslie's Maverick Capital was right behind this move, as the fund said goodbye to about $8.4 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks similar to Verso Corporation (NYSE:VRS). We will take a look at QAD Inc. (NASDAQ:QADA), Unit Corporation (NYSE:UNT), Nexeo Solutions, Inc. (NASDAQ:NXEO), and Schweitzer-Mauduit International, Inc. (NYSE:SWM). This group of stocks' market values are closest to VRS's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position QADA,17,122206,1 UNT,15,9318,5 NXEO,24,368341,-6 SWM,8,18622,-6 Average,16,129622,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $130 million. That figure was $153 million in VRS's case. Nexeo Solutions, Inc. (NASDAQ:NXEO) is the most popular stock in this table. On the other hand Schweitzer-Mauduit International, Inc. (NYSE:SWM) is the least popular one with only 8 bullish hedge fund positions. Verso Corporation (NYSE:VRS) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately VRS wasn't nearly as popular as these 15 stock and hedge funds that were betting on VRS were disappointed as the stock returned -3.8% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.