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Hedge Funds Are Warming Up To Varian Medical Systems, Inc. (VAR)

Abigail Fisher

Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 750 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Varian Medical Systems, Inc. (NYSE:VAR), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Varian Medical Systems, Inc. (NYSE:VAR) investors should pay attention to an increase in enthusiasm from smart money recently. VAR was in 27 hedge funds' portfolios at the end of the third quarter of 2019. There were 25 hedge funds in our database with VAR positions at the end of the previous quarter. Our calculations also showed that VAR isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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_193032" align="aligncenter" width="450"] William Harnisch of Peconic Partners LLC[/caption]

William Harnisch

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's check out the latest hedge fund action encompassing Varian Medical Systems, Inc. (NYSE:VAR).

What have hedge funds been doing with Varian Medical Systems, Inc. (NYSE:VAR)?

At the end of the third quarter, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards VAR 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.

VAR_dec2019

The largest stake in Varian Medical Systems, Inc. (NYSE:VAR) was held by AQR Capital Management, which reported holding $86.9 million worth of stock at the end of September. It was followed by D E Shaw with a $69.9 million position. Other investors bullish on the company included Alyeska Investment Group, Arrowstreet Capital, and GLG Partners. In terms of the portfolio weights assigned to each position Peconic Partners allocated the biggest weight to Varian Medical Systems, Inc. (NYSE:VAR), around 1.32% of its portfolio. Alyeska Investment Group is also relatively very bullish on the stock, setting aside 0.77 percent of its 13F equity portfolio to VAR.

As aggregate interest increased, specific money managers have been driving this bullishness. Laurion Capital Management, managed by Benjamin A. Smith, created the most valuable position in Varian Medical Systems, Inc. (NYSE:VAR). Laurion Capital Management had $13.9 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also made a $13.1 million investment in the stock during the quarter. The other funds with brand new VAR positions are William Harnisch's Peconic Partners, David Harding's Winton Capital Management, and Matthew Hulsizer's PEAK6 Capital Management.

Let's also examine hedge fund activity in other stocks similar to Varian Medical Systems, Inc. (NYSE:VAR). We will take a look at Tractor Supply Company (NASDAQ:TSCO), TechnipFMC plc (NYSE:FTI), SVB Financial Group (NASDAQ:SIVB), and Aramark (NYSE:ARMK). This group of stocks' market values are similar to VAR's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TSCO,36,639730,1 FTI,31,767800,6 SIVB,39,597276,13 ARMK,35,1297465,-1 Average,35.25,825568,4.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.25 hedge funds with bullish positions and the average amount invested in these stocks was $826 million. That figure was $381 million in VAR's case. SVB Financial Group (NASDAQ:SIVB) is the most popular stock in this table. On the other hand TechnipFMC plc (NYSE:FTI) is the least popular one with only 31 bullish hedge fund positions. Compared to these stocks Varian Medical Systems, Inc. (NYSE:VAR) is even less popular than FTI. Hedge funds clearly dropped the ball on VAR as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on VAR as the stock returned 12.3% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.

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

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