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Did Hedge Funds Make The Right Call On Vonage Holdings Corp. (VG)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Vonage Holdings Corp. (NYSE:VG) and determine whether hedge funds skillfully traded this stock.

Is Vonage Holdings Corp. (NYSE:VG) worth your attention right now? Investors who are in the know were taking a pessimistic view. The number of bullish hedge fund positions dropped by 10 recently. Our calculations also showed that VG isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Now let’s take a gander at the new hedge fund action regarding Vonage Holdings Corp. (NYSE:VG).

What have hedge funds been doing with Vonage Holdings Corp. (NYSE:VG)?

At the end of the first quarter, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -29% from the previous quarter. On the other hand, there were a total of 34 hedge funds with a bullish position in VG a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is VG A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Scopia Capital, managed by Matt Sirovich and Jeremy Mindich, holds the most valuable position in Vonage Holdings Corp. (NYSE:VG). Scopia Capital has a $60.2 million position in the stock, comprising 5.5% of its 13F portfolio. Coming in second is Legion Partners Asset Management, led by Ted White and Christopher Kiper, holding a $45.8 million position; the fund has 19.3% of its 13F portfolio invested in the stock. Other peers with similar optimism include Wilmot B. Harkey and Daniel Mack’s Nantahala Capital Management, Steve Cohen’s Point72 Asset 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 19.33% of its 13F portfolio. Scopia Capital is also relatively very bullish on the stock, setting aside 5.5 percent of its 13F equity portfolio to VG.

Due to the fact that Vonage Holdings Corp. (NYSE:VG) has faced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there were a few fund managers that elected to cut their positions entirely in the first quarter. At the top of the heap,Renaissance Technologies cut the largest investment of all the hedgies watched by Insider Monkey, totaling an estimated $5.7 million in stock. Bernard Selz’s fund, Selz Capital, also cut its stock, about $2.8 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 10 funds in the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Vonage Holdings Corp. (NYSE:VG) but similarly valued. These stocks are BankUnited Inc (NYSE:BKU), PolyOne Corporation (NYSE:POL), International Bancshares Corp (NASDAQ:IBOC), and Baozun Inc (NASDAQ:BZUN). This group of stocks’ market values resemble VG’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BKU 18 172092 -7
POL 28 165324 4
IBOC 16 96910 -4
BZUN 12 35603 -3
Average 18.5 117482 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $117 million. That figure was $207 million in VG’s case. PolyOne Corporation (NYSE:POL) is the most popular stock in this table. On the other hand Baozun Inc (NASDAQ:BZUN) is the least popular one with only 12 bullish hedge fund positions. Vonage Holdings Corp. (NYSE:VG) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on VG as the stock returned 39.1% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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