How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Vonage Holdings Corp. (NYSE:VG).
Vonage Holdings Corp. (NYSE:VG) was in 30 hedge funds’ portfolios at the end of September. VG has experienced a decrease in support from the world’s most elite money managers recently. There were 39 hedge funds in our database with VG holdings at the end of the previous quarter. 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 below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
If you’d ask most traders, hedge funds are viewed as unimportant, old financial vehicles of yesteryear. While there are more than 8000 funds in operation at the moment, Our experts choose to focus on the moguls of this group, approximately 750 funds. These hedge fund managers shepherd the majority of the hedge fund industry’s total capital, and by tracking their first-class investments, Insider Monkey has discovered many investment strategies that have historically outrun the broader indices. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points a year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Christopher Kiper of Legion Partners Asset Management
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a look at the new hedge fund action encompassing 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. By comparison, 26 hedge funds held shares or bullish call options in VG a year ago. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
The largest stake in Vonage Holdings Corp. (NYSE:VG) was held by Scopia Capital, which reported holding $132.1 million worth of stock at the end of September. It was followed by Legion Partners Asset Management with a $56.6 million position. Other investors bullish on the company included Select Equity Group, Millennium Management, and 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 portfolio. Clearfield Capital is also relatively very bullish on the stock, setting aside 10.57 percent of its 13F equity portfolio to VG.
Due to the fact that Vonage Holdings Corp. (NYSE:VG) has experienced bearish sentiment from the smart money, we can see that there exists a select few money managers who sold off their positions entirely in the third quarter. It’s worth mentioning that Brandon Haley’s Holocene Advisors dropped the largest stake of all the hedgies monitored by Insider Monkey, valued at close to $25.1 million in stock. Anthony Joseph Vaccarino’s fund, North Fourth Asset Management, also dropped its stock, about $3.9 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 9 funds in the third quarter.
Let’s also examine hedge fund activity in other stocks similar to Vonage Holdings Corp. (NYSE:VG). These stocks are 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 caps resemble VG’s market cap.
| 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 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 -30% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
