Were Hedge Funds Right About Crowding Into Five9 Inc (FIVN)?

Keeping this in mind, let’s analyze whether Five9 Inc (NASDAQ:FIVN) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.

Five9 Inc (NASDAQ:FIVN) investors should be aware of an increase in hedge fund sentiment recently. Five9 Inc (NASDAQ:FIVN) was in 44 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 35. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 33 hedge funds in our database with FIVN positions at the end of the first quarter. Our calculations also showed that FIVN isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Israel Englander of Millennium Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we’re going to review the latest hedge fund action encompassing Five9 Inc (NASDAQ:FIVN).

How are hedge funds trading Five9 Inc (NASDAQ:FIVN)?

At the end of the second quarter, a total of 44 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from the first quarter of 2020. On the other hand, there were a total of 23 hedge funds with a bullish position in FIVN a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Alkeon Capital Management held the most valuable stake in Five9 Inc (NASDAQ:FIVN), which was worth $255.8 million at the end of the third quarter. On the second spot was Whale Rock Capital Management which amassed $235.7 million worth of shares. SQN Investors, Millennium Management, and Renaissance Technologies 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 SQN Investors allocated the biggest weight to Five9 Inc (NASDAQ:FIVN), around 7.15% of its 13F portfolio. Alta Park Capital is also relatively very bullish on the stock, designating 4.93 percent of its 13F equity portfolio to FIVN.

As aggregate interest increased, key hedge funds were breaking ground themselves. Millennium Management, managed by Israel Englander, created the most valuable position in Five9 Inc (NASDAQ:FIVN). Millennium Management had $59.2 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $45.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Brandon Haley’s Holocene Advisors, James Parsons’s Junto Capital Management, and Blair Baker’s Precept Capital Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Five9 Inc (NASDAQ:FIVN) but similarly valued. We will take a look at Chemed Corporation (NYSE:CHE), Albertsons Companies, Inc. (NYSE:ACI), Ascendis Pharma A/S (NASDAQ:ASND), JOYY Inc. (NASDAQ:YY), Nuance Communications Inc. (NASDAQ:NUAN), The Toro Company (NYSE:TTC), and Lincoln National Corporation (NYSE:LNC). This group of stocks’ market valuations resemble FIVN’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 32 hedge funds with bullish positions and the average amount invested in these stocks was $1321 million. That figure was $1130 million in FIVN’s case. Nuance Communications Inc. (NASDAQ:NUAN) is the most popular stock in this table. On the other hand Chemed Corporation (NYSE:CHE) is the least popular one with only 26 bullish hedge fund positions. Five9 Inc (NASDAQ:FIVN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FIVN is 90. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 30% in 2020 through October 23rd and still beat the market by 21 percentage points. Hedge funds were also right about betting on FIVN as the stock returned 28.6% since the end of Q2 (through 10/23) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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