Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 12.1% in the first 5 months of this year through May 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Verisign, Inc. (NASDAQ:VRSN).
Is Verisign, Inc. (NASDAQ:VRSN) worth your attention right now? The best stock pickers are getting more bullish. The number of long hedge fund bets went up by 1 in recent months. Our calculations also showed that VRSN isn’t among the 30 most popular stocks among hedge funds.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
We’re going to go over the latest hedge fund action regarding Verisign, Inc. (NASDAQ:VRSN).
How are hedge funds trading Verisign, Inc. (NASDAQ:VRSN)?
At Q1’s end, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in VRSN over the last 15 quarters. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
Among these funds, Berkshire Hathaway held the most valuable stake in Verisign, Inc. (NASDAQ:VRSN), which was worth $2351.7 million at the end of the first quarter. On the second spot was Renaissance Technologies which amassed $1331 million worth of shares. Moreover, D E Shaw, Cantillon Capital Management, and AQR Capital Management were also bullish on Verisign, Inc. (NASDAQ:VRSN), allocating a large percentage of their portfolios to this stock.
Consequently, key money managers were leading the bulls’ herd. Stockbridge Partners, managed by Sharlyn C. Heslam, created the most outsized position in Verisign, Inc. (NASDAQ:VRSN). Stockbridge Partners had $14.8 million invested in the company at the end of the quarter. Michael Platt and William Reeves’s BlueCrest Capital Mgmt. also made a $1.4 million investment in the stock during the quarter. The following funds were also among the new VRSN investors: Bruce Kovner’s Caxton Associates LP, Michael Gelband’s ExodusPoint Capital, and Mike Vranos’s Ellington.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Verisign, Inc. (NASDAQ:VRSN) but similarly valued. These stocks are Rogers Communications Inc. (NYSE:RCI), Global Payments Inc (NYSE:GPN), Interactive Brokers Group, Inc. (NASDAQ:IBKR), and Lululemon Athletica inc. (NASDAQ:LULU). This group of stocks’ market caps are similar to VRSN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RCI | 15 | 559786 | 2 |
| GPN | 29 | 557425 | 2 |
| IBKR | 23 | 940831 | 2 |
| LULU | 42 | 1770036 | 6 |
| Average | 27.25 | 957020 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.25 hedge funds with bullish positions and the average amount invested in these stocks was $957 million. That figure was $5137 million in VRSN’s case. Lululemon Athletica inc. (NASDAQ:LULU) is the most popular stock in this table. On the other hand Rogers Communications Inc. (NYSE:RCI) is the least popular one with only 15 bullish hedge fund positions. Verisign, Inc. (NASDAQ:VRSN) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on VRSN as the stock returned 7.9% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
