Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57%. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 41.1% in 2019 (through December 23rd) and outperformed the broader market benchmark by 10.1 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Vonage Holdings Corp. (NYSE:VG) has seen a decrease in activity from the world’s largest hedge funds of late. Our calculations also showed that VG isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Christopher Kiper of Legion Partners Asset Management
We leave no stone unturned when looking for the next great investment idea. For example one of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Now we’re going to take a peek at the recent hedge fund action surrounding Vonage Holdings Corp. (NYSE:VG).
What have hedge funds been doing with Vonage Holdings Corp. (NYSE:VG)?
Heading into the fourth quarter of 2019, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -23% from the previous quarter. The graph below displays the number of hedge funds with bullish position in VG over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Scopia Capital, managed by Matt Sirovich and Jeremy Mindich, holds the number one position in Vonage Holdings Corp. (NYSE:VG). Scopia Capital has a $132.1 million position in the stock, comprising 7.7% of its 13F portfolio. The second largest stake is held by Legion Partners Asset Management, managed by Ted White and Christopher Kiper, which holds a $56.6 million position; 13.9% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors with similar optimism contain Robert Joseph Caruso’s Select Equity Group, Israel Englander’s Millennium Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Legion Partners Asset Management allocated the biggest weight to Vonage Holdings Corp. (NYSE:VG), around 13.89% of its 13F portfolio. Clearfield Capital is also relatively very bullish on the stock, dishing out 10.57 percent of its 13F equity portfolio to VG.
Seeing as Vonage Holdings Corp. (NYSE:VG) has experienced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there were a few funds that decided to sell off their positions entirely by the end of the third quarter. It’s worth mentioning that Brandon Haley’s Holocene Advisors said goodbye to the biggest investment of the “upper crust” of funds followed by Insider Monkey, totaling close to $25.1 million in stock. Anthony Joseph Vaccarino’s fund, North Fourth Asset Management, also sold off its stock, about $3.9 million worth. These moves are important to note, as aggregate hedge fund interest fell by 9 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Vonage Holdings Corp. (NYSE:VG) but similarly valued. We will take a look at Main Street Capital Corporation (NYSE:MAIN), SITE Centers Corp. (NYSE:SITC), Delek US Holdings, Inc. (NYSE:DK), and Taylor Morrison Home Corp (NYSE:TMHC). This group of stocks’ market valuations are closest to VG’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MAIN | 4 | 13169 | 0 |
| SITC | 11 | 54558 | -4 |
| DK | 21 | 87212 | 3 |
| TMHC | 24 | 375208 | 5 |
| Average | 15 | 132537 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $133 million. That figure was $369 million in VG’s case. Taylor Morrison Home Corp (NYSE:TMHC) is the most popular stock in this table. On the other hand Main Street Capital Corporation (NYSE:MAIN) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Vonage Holdings Corp. (NYSE:VG) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately VG wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on VG were disappointed as the stock returned -17.3% so far in 2019 (through 12/23) and trailed 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 65 percent of these stocks already outperformed the market in 2019.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
