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Did Hedge Funds Drop The Ball On RingCentral Inc (RNG) ?

Is RingCentral Inc (NYSE:RNG) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also have numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is RingCentral Inc (NYSE:RNG) the right pick for your portfolio? The best stock pickers are in a bullish mood. The number of long hedge fund positions advanced by 2 lately. Our calculations also showed that RNG isn’t among the 30 most popular stocks among hedge funds (view the video below). RNG was in 45 hedge funds’ portfolios at the end of the second quarter of 2019. There were 43 hedge funds in our database with RNG positions at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

RNG_oct2019

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s check out the fresh hedge fund action surrounding RingCentral Inc (NYSE:RNG).

What does smart money think about RingCentral Inc (NYSE:RNG)?

At the end of the second quarter, a total of 45 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from the first quarter of 2019. By comparison, 40 hedge funds held shares or bullish call options in RNG a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Nehal Chopra Tiger Ratan Capital Group

The largest stake in RingCentral Inc (NYSE:RNG) was held by Tiger Global Management LLC, which reported holding $345.1 million worth of stock at the end of March. It was followed by Alkeon Capital Management with a $210.6 million position. Other investors bullish on the company included SCGE Management, Columbus Circle Investors, and Arrowstreet Capital.

With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. SQN Investors, managed by Amish Mehta, initiated the most outsized position in RingCentral Inc (NYSE:RNG). SQN Investors had $50.6 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $18.2 million position during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace’s Marshall Wace LLP, Joe DiMenna’s ZWEIG DIMENNA PARTNERS, and Nehal Chopra’s Ratan Capital Group.

Let’s go over hedge fund activity in other stocks similar to RingCentral Inc (NYSE:RNG). We will take a look at UGI Corp (NYSE:UGI), Vedanta Ltd (NYSE:VEDL), Bio-Rad Laboratories, Inc. (NYSE:BIO), and Fair Isaac Corporation (NYSE:FICO). All of these stocks’ market caps are similar to RNG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UGI 20 457311 0
VEDL 8 53339 2
BIO 36 954442 -1
FICO 34 730765 7
Average 24.5 548964 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $549 million. That figure was $1321 million in RNG’s case. Bio-Rad Laboratories, Inc. (NYSE:BIO) is the most popular stock in this table. On the other hand Vedanta Ltd (NYSE:VEDL) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks RingCentral Inc (NYSE:RNG) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on RNG as the stock returned 9.3% during Q3 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.

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

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