We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Verint Systems Inc. (NASDAQ:VRNT) and determine whether hedge funds skillfully traded this stock.
Verint Systems Inc. (NASDAQ:VRNT) investors should pay attention to an increase in enthusiasm from smart money of late. Verint Systems Inc. (NASDAQ:VRNT) was in 25 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 36. There were 17 hedge funds in our database with VRNT holdings at the end of March. Our calculations also showed that VRNT 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.
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 S&P 500 ETFs by 58 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.
Robert Moses of RGM Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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 let's take a look at the new hedge fund action encompassing Verint Systems Inc. (NASDAQ:VRNT).
How are hedge funds trading Verint Systems Inc. (NASDAQ:VRNT)?
At the end of June, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 47% from the previous quarter. By comparison, 23 hedge funds held shares or bullish call options in VRNT a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, RGM Capital held the most valuable stake in Verint Systems Inc. (NASDAQ:VRNT), which was worth $97.7 million at the end of the third quarter. On the second spot was Cardinal Capital which amassed $64.3 million worth of shares. Fisher Asset Management, Baupost Group, and Carlson Capital 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 RGM Capital allocated the biggest weight to Verint Systems Inc. (NASDAQ:VRNT), around 5.88% of its 13F portfolio. Shannon River Fund Management is also relatively very bullish on the stock, earmarking 3.37 percent of its 13F equity portfolio to VRNT.
Consequently, key money managers have jumped into Verint Systems Inc. (NASDAQ:VRNT) headfirst. Baupost Group, managed by Seth Klarman, established the biggest position in Verint Systems Inc. (NASDAQ:VRNT). Baupost Group had $27.8 million invested in the company at the end of the quarter. Clint Carlson's Carlson Capital also made a $25.8 million investment in the stock during the quarter. The other funds with brand new VRNT positions are Spencer M. Waxman's Shannon River Fund Management, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, and Mika Toikka's AlphaCrest Capital Management.
Let's now review hedge fund activity in other stocks similar to Verint Systems Inc. (NASDAQ:VRNT). We will take a look at Lexington Realty Trust (NYSE:LXP), Karuna Therapeutics, Inc. (NASDAQ:KRTX), Fate Therapeutics Inc (NASDAQ:FATE), Viavi Solutions Inc (NASDAQ:VIAV), American States Water Co (NYSE:AWR), Saia Inc (NASDAQ:SAIA), and Altair Engineering Inc. (NASDAQ:ALTR). This group of stocks' market caps resemble VRNT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LXP,10,43913,0 KRTX,16,177325,0 FATE,36,985557,12 VIAV,31,340923,0 AWR,20,63884,1 SAIA,17,69816,4 ALTR,14,298466,5 Average,20.6,282841,3.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.6 hedge funds with bullish positions and the average amount invested in these stocks was $283 million. That figure was $333 million in VRNT's case. Fate Therapeutics Inc (NASDAQ:FATE) is the most popular stock in this table. On the other hand Lexington Realty Trust (NYSE:LXP) is the least popular one with only 10 bullish hedge fund positions. Verint Systems Inc. (NASDAQ:VRNT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for VRNT is 59.7. 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. 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 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 21.3% in 2020 through September 25th and beat the market by 17.7 percentage points. Unfortunately VRNT wasn't nearly as popular as these 10 stocks and hedge funds that were betting on VRNT were disappointed as the stock returned 3.9% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Get real-time email alerts: Follow Verint Systems Inc (NASDAQ:VRNT)
Disclosure: None. This article was originally published at Insider Monkey.