Is Varonis Systems Inc (VRNS) Worthy of Your Portfolio?

The worries about the election and the ongoing uncertainty about the path of interest-rate increases have been keeping investors on the sidelines. Of course, most hedge funds and other asset managers have been underperforming main stock market indices since the middle of 2015. Interestingly though, smaller-cap stocks registered their best performance relative to the large-capitalization stocks since the end of the June quarter, suggesting that this may be the best time to take a cue from their stock picks. In fact, the Russell 2000 Index gained more than 15% since the beginning of the third quarter, while the Standard and Poor’s 500 benchmark returned less than 6%. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Varonis Systems Inc (NASDAQ:VRNS) .

Varonis Systems Inc (NASDAQ:VRNS) was included in the equity portfolios of 17 investors tracked by Insider Monkey at the end of September. VRNS investors should be aware of an increase in enthusiasm from smart money, as there had been 14 funds in our database with VRNS positions at the end of the previous quarter. However, the level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Leju Holdings Ltd (ADR) (NYSE:LEJU), TriCo Bancshares (NASDAQ:TCBK), and Viad Corp (NYSE:VVI) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

Now, let’s take a look at the key action encompassing Varonis Systems Inc (NASDAQ:VRNS).

How are hedge funds trading Varonis Systems Inc (NASDAQ:VRNS)?

At the end of September, 17 investors tracked by Insider Monkey held long positions in this stock, up by 21% over the quarter. The graph below displays the number of hedge funds with bullish position in VRNS over the last five quarters. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Eric Bannasch’s Cadian Capital holds the most valuable position in Varonis Systems Inc (NASDAQ:VRNS). Cadian Capital has a $34.9 million position in the stock, comprising 1.8% of its 13F portfolio. The second most bullish fund manager is Alyeska Investment Group, led by Anand Parekh, which holds a $11.1 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish comprise Josh Goldberg’s G2 Investment Partners Management and Mark Coe’s Coe Capital Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

As industrywide interest jumped, key hedge funds were breaking ground themselves. Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, created the most valuable position in Varonis Systems Inc (NASDAQ:VRNS). Arrowstreet Capital had $6 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $1 million position during the third quarter. The other funds with new positions in the stock are Peter Algert and Kevin Coldiron’s Algert Coldiron Investors, Cliff Asness’ AQR Capital Management, and Glenn Russell Dubin’s Highbridge Capital Management.

Let’s check out hedge fund activity in other stocks similar to Varonis Systems Inc (NASDAQ:VRNS). These stocks are Leju Holdings Ltd (ADR) (NYSE:LEJU), TriCo Bancshares (NASDAQ:TCBK), Viad Corp (NYSE:VVI), and MakeMyTrip Limited (NASDAQ:MMYT). This group of stocks’ market values resemble VRNS’s market value.

As you can see these stocks had an average of nine investors holding long positions and the average amount invested in these stocks was $79 million. That figure was $77 million in VRNS’s case. Viad Corp (NYSE:VVI) is the most popular stock in this table, while Leju Holdings Ltd (ADR) (NYSE:LEJU) is the least popular one with only four bullish hedge fund positions. Compared to these stocks Varonis Systems Inc (NASDAQ:VRNS) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.