Did Hedge Funds Make The Right Call On Varonis Systems Inc (VRNS)?

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 Varonis Systems Inc (NASDAQ:VRNS) and determine whether hedge funds skillfully traded this stock.

Is Varonis Systems Inc (NASDAQ:VRNS) a buy here? Investors who are in the know were betting on the stock. The number of long hedge fund bets improved by 2 recently. Our calculations also showed that VRNS 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). VRNS was in 20 hedge funds’ portfolios at the end of March. There were 18 hedge funds in our database with VRNS positions at the end of the previous quarter.

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 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’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.

Gil Simon of SoMa Equity Partners

Gil Simon of SoMa Equity Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now let’s take a glance at the fresh hedge fund action surrounding Varonis Systems Inc (NASDAQ:VRNS).

What have hedge funds been doing with Varonis Systems Inc (NASDAQ:VRNS)?

At Q1’s end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from one quarter earlier. On the other hand, there were a total of 25 hedge funds with a bullish position in VRNS a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is VRNS A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Cadian Capital, managed by Eric Bannasch, holds the largest position in Varonis Systems Inc (NASDAQ:VRNS). Cadian Capital has a $147.8 million position in the stock, comprising 7.3% of its 13F portfolio. The second largest stake is held by SoMa Equity Partners, managed by Gil Simon, which holds a $79 million position; 4.4% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors that are bullish consist of Brett Barakett’s Tremblant Capital, David Thomas’s Atalan Capital and John Brennan’s Sirios Capital Management. In terms of the portfolio weights assigned to each position North Run Capital allocated the biggest weight to Varonis Systems Inc (NASDAQ:VRNS), around 8.66% of its 13F portfolio. Cadian Capital is also relatively very bullish on the stock, designating 7.27 percent of its 13F equity portfolio to VRNS.

Now, key hedge funds were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, initiated the most outsized position in Varonis Systems Inc (NASDAQ:VRNS). Citadel Investment Group had $8.8 million invested in the company at the end of the quarter. Richard Mashaal’s Rima Senvest Management also made a $2.1 million investment in the stock during the quarter. The following funds were also among the new VRNS investors: Noam Gottesman’s GLG Partners, Paul Tudor Jones’s Tudor Investment Corp, and Bruce Kovner’s Caxton Associates LP.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Varonis Systems Inc (NASDAQ:VRNS) but similarly valued. These stocks are TFI International Inc. (NYSE:TFII), Outfront Media Inc (NYSE:OUT), Cornerstone OnDemand, Inc. (NASDAQ:CSOD), and Sunstone Hotel Investors Inc (NYSE:SHO). This group of stocks’ market caps are closest to VRNS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TFII 12 41372 12
OUT 30 329476 -1
CSOD 24 505400 -5
SHO 19 110027 -3
Average 21.25 246569 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $247 million. That figure was $388 million in VRNS’s case. Outfront Media Inc (NYSE:OUT) is the most popular stock in this table. On the other hand TFI International Inc. (NYSE:TFII) is the least popular one with only 12 bullish hedge fund positions. Varonis Systems Inc (NASDAQ:VRNS) 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 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on VRNS as the stock returned 61.2% since the end of March and outperformed the market by an even larger margin.

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