Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by nearly 9 percentage points since the end of the third quarter of 2018 as investors worried over the possible ramifications of rising interest rates and escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only 298 S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Verint Systems Inc. (NASDAQ:VRNT) and see how the stock is affected by the recent hedge fund activity.
Is Verint Systems Inc. (NASDAQ:VRNT) a healthy stock for your portfolio? Prominent investors are in a bullish mood. The number of long hedge fund bets rose by 4 in recent months. Our calculations also showed that vrnt isn't among the 30 most popular stocks among hedge funds. VRNT was in 22 hedge funds' portfolios at the end of March. There were 18 hedge funds in our database with VRNT positions at the end of the previous quarter.
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 market by 40 percentage points since May 2014 through May 30, 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.
[caption id="attachment_745225" align="aligncenter" width="473"] Noam Gottesman, GLG Partners[/caption]
We're going to take a gander at the fresh hedge fund action encompassing Verint Systems Inc. (NASDAQ:VRNT).
How have hedgies been trading Verint Systems Inc. (NASDAQ:VRNT)?
Heading into the second quarter of 2019, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 22% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in VRNT over the last 15 quarters. With hedgies' capital changing hands, there exists a select group of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
More specifically, RGM Capital was the largest shareholder of Verint Systems Inc. (NASDAQ:VRNT), with a stake worth $141.9 million reported as of the end of March. Trailing RGM Capital was Fisher Asset Management, which amassed a stake valued at $88.1 million. SQN Investors, GLG Partners, and Arrowstreet Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Consequently, key hedge funds were breaking ground themselves. SQN Investors, managed by Amish Mehta, assembled the most outsized position in Verint Systems Inc. (NASDAQ:VRNT). SQN Investors had $45.8 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also initiated a $9 million position during the quarter. The following funds were also among the new VRNT investors: Noam Gottesman's GLG Partners, Ken Griffin's Citadel Investment Group, and Philip Hempleman's Ardsley Partners.
Let's also examine hedge fund activity in other stocks similar to Verint Systems Inc. (NASDAQ:VRNT). These stocks are Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL), Avalara, Inc. (NYSE:AVLR), Blackbaud, Inc. (NASDAQ:BLKB), and Eagle Materials, Inc. (NYSE:EXP). This group of stocks' market values match VRNT's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CBRL,23,144940,4 AVLR,27,889800,13 BLKB,11,72252,-2 EXP,29,724390,4 Average,22.5,457846,4.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $458 million. That figure was $370 million in VRNT's case. Eagle Materials, Inc. (NYSE:EXP) is the most popular stock in this table. On the other hand Blackbaud, Inc. (NASDAQ:BLKB) is the least popular one with only 11 bullish hedge fund positions. Verint Systems Inc. (NASDAQ:VRNT) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately VRNT wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); VRNT investors were disappointed as the stock returned -4.7% during the same time period and underperformed 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.