U.S. Markets closed

Hedge Funds Have Never Been This Bullish On Varian Medical Systems, Inc. (VAR)

Reymerlyn Martin

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren't usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index's returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you'd fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of 6 percentage points during the first 5 months of 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in Varian Medical Systems, Inc. (NYSE: VAR ).

Varian Medical Systems, Inc. (NYSE: VAR ) investors should pay attention to an increase in hedge fund interest lately. Our calculations also showed that VAR isn't among the 30 most popular stocks among hedge funds .

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 ( see the details here ). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Brad Farber Atika Capital

We're going to take a glance at the fresh hedge fund action regarding Varian Medical Systems, Inc. (NYSE: VAR ).

What does the smart money think about Varian Medical Systems, Inc. (NYSE:VAR)?

At the end of the first quarter, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards VAR over the last 15 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

VAR_jun2019

According to Insider Monkey's hedge fund database, Israel Englander's Millennium Management has the most valuable position in Varian Medical Systems, Inc. (NYSE:VAR), worth close to $161.5 million, corresponding to 0.2% of its total 13F portfolio. On Millennium Management's heels is Jim Simons of Renaissance Technologies , with a $126.1 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish contain Cliff Asness's AQR Capital Management , Ken Griffin's Citadel Investment Group and Noam Gottesman's GLG Partners .

Consequently, key hedge funds have jumped into Varian Medical Systems, Inc. (NYSE:VAR) headfirst. Atika Capital , managed by Brad Farber, assembled the most valuable position in Varian Medical Systems, Inc. (NYSE:VAR). Atika Capital had $6.9 million invested in the company at the end of the quarter. David Costen Haley's HBK Investments also initiated a $3.6 million position during the quarter. The following funds were also among the new VAR investors: Krishen Sud's Sivik Global Healthcare , Matthew Tewksbury's Stevens Capital Management , and Mike Vranos's Ellington .

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Varian Medical Systems, Inc. (NYSE:VAR) but similarly valued. These stocks are Vornado Realty Trust (NYSE: VNO ), Wynn Resorts, Limited (NASDAQ: WYNN ), Tiffany & Co. (NYSE: TIF ), and UDR, Inc. (NYSE: UDR ). This group of stocks' market values are closest to VAR's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VNO,30,474922,7 WYNN,44,2204934,-2 TIF,30,1663436,0 UDR,18,682485,-2 Average,30.5,1256444,0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.5 hedge funds with bullish positions and the average amount invested in these stocks was $1256 million. That figure was $980 million in VAR's case. Wynn Resorts, Limited (NASDAQ: WYNN ) is the most popular stock in this table. On the other hand UDR, Inc. (NYSE: UDR ) is the least popular one with only 18 bullish hedge fund positions. Varian Medical Systems, Inc. (NYSE:VAR) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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. Unfortunately VAR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on VAR were disappointed as the stock returned -10.3% during the same period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.

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

Related Content