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Here is How Hedge Funds Traded VirnetX Holding Corporation (VHC) During The Crash

Debasis Saha

In this article we will take a look at whether hedge funds think VirnetX Holding Corporation (NYSE:VHC) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

VirnetX Holding Corporation (NYSE:VHC) was in 3 hedge funds' portfolios at the end of March. VHC shareholders have witnessed an increase in support from the world's most elite money managers recently. There were 1 hedge funds in our database with VHC positions at the end of the previous quarter. Our calculations also showed that VHC isn't among the 30 most popular stocks among hedge funds (click for Q1 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 44 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_365194" align="aligncenter" width="400"] David E. Shaw of D.E. Shaw[/caption]

David E. Shaw of D.E. Shaw

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. We interview hedge fund managers and ask them about their best ideas. You can watch our latest hedge fund manager interview here and find out the name of the large-cap healthcare stock that Sio Capital's Michael Castor expects to double. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to take a glance at the fresh hedge fund action surrounding VirnetX Holding Corporation (NYSE:VHC).

Hedge fund activity in VirnetX Holding Corporation (NYSE:VHC)

At the end of the first quarter, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 200% from the previous quarter. The graph below displays the number of hedge funds with bullish position in VHC over the last 18 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

Is VHC A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, D. E. Shaw's D E Shaw has the most valuable position in VirnetX Holding Corporation (NYSE:VHC), worth close to $0.4 million, amounting to less than 0.1%% of its total 13F portfolio. The second largest stake is held by Citadel Investment Group, managed by Ken Griffin, which holds a $0.3 million call position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish contain Ken Griffin's Citadel Investment Group, Israel Englander's Millennium Management and . In terms of the portfolio weights assigned to each position D E Shaw allocated the biggest weight to VirnetX Holding Corporation (NYSE:VHC), around 0.0006% of its 13F portfolio. Millennium Management is also relatively very bullish on the stock, earmarking 0.0005 percent of its 13F equity portfolio to VHC.

As industrywide interest jumped, key hedge funds were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, established the most valuable position in VirnetX Holding Corporation (NYSE:VHC). Citadel Investment Group had $0.2 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also made a $0.2 million investment in the stock during the quarter.

Let's now review hedge fund activity in other stocks similar to VirnetX Holding Corporation (NYSE:VHC). We will take a look at Donegal Group, Inc. (NASDAQ:DGICB), Celestica Inc. (NYSE:CLS), Global Cord Blood Corp (NYSE:CO), and MagnaChip Semiconductor Corporation (NYSE:MX). This group of stocks' market valuations are similar to VHC's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DGICB,1,312,0 CLS,15,48453,2 CO,13,18445,1 MX,22,153806,-5 Average,12.75,55254,-0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $55 million. That figure was $1 million in VHC's case. MagnaChip Semiconductor Corporation (NYSE:MX) is the most popular stock in this table. On the other hand Donegal Group, Inc. (NASDAQ:DGICB) is the least popular one with only 1 bullish hedge fund positions. VirnetX Holding Corporation (NYSE:VHC) is not the least popular stock in this group but hedge fund interest is still below average. 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 7.9% in 2020 through May 22nd and still beat the market by 15.6 percentage points. A small number of hedge funds were also right about betting on VHC as the stock returned 53.2% during the second quarter and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.

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