Were Hedge Funds Right About Piling Into Verisign, Inc. (VRSN)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Verisign, Inc. (NASDAQ:VRSN) based on that data and determine whether they were really smart about the stock.

Verisign, Inc. (NASDAQ:VRSN) has experienced an increase in support from the world’s most elite money managers in recent months. VRSN was in 41 hedge funds’ portfolios at the end of the first quarter of 2020. There were 38 hedge funds in our database with VRSN holdings at the end of the previous quarter. Our calculations also showed that VRSN 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).

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 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.

William Von Mueffling - Cantillon Capital Management

William Von Mueffling of Cantillon Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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 gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to go over the fresh hedge fund action encompassing Verisign, Inc. (NASDAQ:VRSN).

How have hedgies been trading Verisign, Inc. (NASDAQ:VRSN)?

At Q1’s end, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the fourth quarter of 2019. On the other hand, there were a total of 31 hedge funds with a bullish position in VRSN 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.

Among these funds, Berkshire Hathaway held the most valuable stake in Verisign, Inc. (NASDAQ:VRSN), which was worth $2308 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $1459.7 million worth of shares. D E Shaw, Cantillon Capital Management, and AQR Capital Management 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 Atalan Capital allocated the biggest weight to Verisign, Inc. (NASDAQ:VRSN), around 14.11% of its 13F portfolio. Highside Global Management is also relatively very bullish on the stock, designating 7.76 percent of its 13F equity portfolio to VRSN.

As one would reasonably expect, some big names have jumped into Verisign, Inc. (NASDAQ:VRSN) headfirst. Stockbridge Partners, managed by Sharlyn C. Heslam, created the most valuable position in Verisign, Inc. (NASDAQ:VRSN). Stockbridge Partners had $123.7 million invested in the company at the end of the quarter. Jacob Doft’s Highline Capital Management also initiated a $31.3 million position during the quarter. The other funds with brand new VRSN positions are Lee Hicks and Jan Koerner’s Park Presidio Capital, Zach Petrone’s Highside Global Management, and Dmitry Balyasny’s Balyasny Asset Management.

Let’s check out hedge fund activity in other stocks similar to Verisign, Inc. (NASDAQ:VRSN). These stocks are EOG Resources Inc (NYSE:EOG), Zimmer Biomet Holdings Inc (NYSE:ZBH), IQVIA Holdings, Inc. (NYSE:IQV), and ZTO Express (Cayman) Inc. (NYSE:ZTO). This group of stocks’ market valuations match VRSN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EOG 44 801052 1
ZBH 51 621129 -13
IQV 60 2473750 -4
ZTO 15 562997 1
Average 42.5 1114732 -3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.5 hedge funds with bullish positions and the average amount invested in these stocks was $1115 million. That figure was $5645 million in VRSN’s case. IQVIA Holdings, Inc. (NYSE:IQV) is the most popular stock in this table. On the other hand ZTO Express (Cayman) Inc. (NYSE:ZTO) is the least popular one with only 15 bullish hedge fund positions. Verisign, Inc. (NASDAQ:VRSN) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately VRSN wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); VRSN investors were disappointed as the stock returned 14.8% during the second quarter 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 most of these stocks already outperformed the market in 2020.

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