Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Verso Corporation (NYSE:VRS).
Is VRS a good stock to buy now? Hedge fund interest in Verso Corporation (NYSE:VRS) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that VRS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). 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 Selecta Biosciences, Inc. (NASDAQ:SELB), Turtle Beach Corp (NASDAQ:HEAR), and Citi Trends, Inc. (NASDAQ:CTRN) to gather more data points.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. With all of this in mind we’re going to take a gander at the latest hedge fund action surrounding Verso Corporation (NYSE:VRS).
Do Hedge Funds Think VRS Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. By comparison, 22 hedge funds held shares or bullish call options in VRS a year ago. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
The largest stake in Verso Corporation (NYSE:VRS) was held by SCW Capital Management, which reported holding $17.3 million worth of stock at the end of September. It was followed by Royce & Associates with a $14.2 million position. Other investors bullish on the company included Redwood Capital Management, Skylands Capital, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position SCW Capital Management allocated the biggest weight to Verso Corporation (NYSE:VRS), around 10.01% of its 13F portfolio. Skylands Capital is also relatively very bullish on the stock, earmarking 0.53 percent of its 13F equity portfolio to VRS.
Because Verso Corporation (NYSE:VRS) has witnessed falling interest from the entirety of the hedge funds we track, it’s safe to say that there were a few fund managers that elected to cut their entire stakes by the end of the third quarter. Intriguingly, Frederick Tucker Golden’s Solas Capital Management cut the biggest position of the “upper crust” of funds watched by Insider Monkey, worth an estimated $2.9 million in stock, and Renaissance Technologies was right behind this move, as the fund dumped about $1.3 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Verso Corporation (NYSE:VRS) but similarly valued. We will take a look at Selecta Biosciences, Inc. (NASDAQ:SELB), Turtle Beach Corp (NASDAQ:HEAR), Citi Trends, Inc. (NASDAQ:CTRN), Agile Therapeutics Inc (NASDAQ:AGRX), NuCana plc (NASDAQ:NCNA), ORBCOMM Inc (NASDAQ:ORBC), and Metacrine, Inc. (NASDAQ:MTCR). This group of stocks’ market valuations resemble VRS’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.3 hedge funds with bullish positions and the average amount invested in these stocks was $43 million. That figure was $51 million in VRS’s case. Selecta Biosciences, Inc. (NASDAQ:SELB) is the most popular stock in this table. On the other hand NuCana plc (NASDAQ:NCNA) is the least popular one with only 8 bullish hedge fund positions. Verso Corporation (NYSE:VRS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for VRS is 58.8. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on VRS as the stock returned 51.8% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.