While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Five9 Inc (NASDAQ:FIVN) and see how the stock performed in comparison to hedge funds’ consensus picks.
Five9 Inc (NASDAQ:FIVN) was in 31 hedge funds’ portfolios at the end of September. FIVN has seen an increase in hedge fund sentiment of late. There were 23 hedge funds in our database with FIVN positions at the end of the previous quarter. Our calculations also showed that FIVN 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.
Michael Johnston of Steelhead Partners
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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. We even check out this option genius’ weekly trade ideas. 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 already gained 20 percent. Keeping this in mind let’s analyze the new hedge fund action encompassing Five9 Inc (NASDAQ:FIVN).
How have hedgies been trading Five9 Inc (NASDAQ:FIVN)?
Heading into the fourth quarter of 2019, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 35% from the previous quarter. The graph below displays the number of hedge funds with bullish position in FIVN over the last 17 quarters. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Daniel Patrick Gibson’s Sylebra Capital Management has the largest position in Five9 Inc (NASDAQ:FIVN), worth close to $116.3 million, corresponding to 5.1% of its total 13F portfolio. The second largest stake is held by Alkeon Capital Management, led by Panayotis Takis Sparaggis, holding a $106 million position; 0.4% of its 13F portfolio is allocated to the stock. Remaining professional money managers that hold long positions comprise Alex Sacerdote’s Whale Rock Capital Management, Brett Barakett’s Tremblant Capital and David Gallo’s Valinor Management. In terms of the portfolio weights assigned to each position Alta Park Capital allocated the biggest weight to Five9 Inc (NASDAQ:FIVN), around 5.17% of its 13F portfolio. Sylebra Capital Management is also relatively very bullish on the stock, dishing out 5.08 percent of its 13F equity portfolio to FIVN.
Now, specific money managers have been driving this bullishness. Whale Rock Capital Management, managed by Alex Sacerdote, assembled the biggest position in Five9 Inc (NASDAQ:FIVN). Whale Rock Capital Management had $56.6 million invested in the company at the end of the quarter. David Gallo’s Valinor Management also made a $36.3 million investment in the stock during the quarter. The following funds were also among the new FIVN investors: David Fiszel’s Honeycomb Asset Management, Dennis Puri and Oliver Keller’s Hunt Lane Capital, and Michel Massoud’s Melqart Asset Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Five9 Inc (NASDAQ:FIVN) but similarly valued. These stocks are AppFolio Inc (NASDAQ:APPF), Semtech Corporation (NASDAQ:SMTC), Balchem Corporation (NASDAQ:BCPC), and FibroGen Inc (NASDAQ:FGEN). All of these stocks’ market caps match FIVN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| APPF | 11 | 211977 | -1 |
| SMTC | 16 | 218316 | -1 |
| BCPC | 7 | 56560 | -2 |
| FGEN | 24 | 334669 | 8 |
| Average | 14.5 | 205381 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $205 million. That figure was $579 million in FIVN’s case. FibroGen Inc (NASDAQ:FGEN) is the most popular stock in this table. On the other hand Balchem Corporation (NASDAQ:BCPC) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Five9 Inc (NASDAQ:FIVN) 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. Hedge funds were also right about betting on FIVN as the stock returned 51.1% so far in 2019 (through 12/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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.
