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Hedge Funds Are Buying 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. (NASDAQ:VG) and determine whether hedge funds skillfully traded this stock.

Vonage Holdings Corp. (NASDAQ:VG) shareholders have witnessed an increase in enthusiasm from smart money in recent months. Vonage Holdings Corp. (NASDAQ:VG) was in 30 hedge funds’ portfolios at the end of June. The all time high for this statistics is 39. Our calculations also showed that VG 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.

Steven Cohen of Point72 Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now let’s analyze the key hedge fund action regarding Vonage Holdings Corp. (NASDAQ:VG).

What does smart money think about Vonage Holdings Corp. (NASDAQ:VG)?

At second quarter’s end, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in VG over the last 20 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Legion Partners Asset Management held the most valuable stake in Vonage Holdings Corp. (NASDAQ:VG), which was worth $63.8 million at the end of the third quarter. On the second spot was Nantahala Capital Management which amassed $51.6 million worth of shares. Point72 Asset Management, Rubric Capital Management, and Alta Park Capital 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 Legion Partners Asset Management allocated the biggest weight to Vonage Holdings Corp. (NASDAQ:VG), around 17.85% of its 13F portfolio. Rubric Capital Management is also relatively very bullish on the stock, setting aside 2.75 percent of its 13F equity portfolio to VG.

Now, key money managers have jumped into Vonage Holdings Corp. (NASDAQ:VG) headfirst. Rubric Capital Management, managed by David Rosen, initiated the most valuable position in Vonage Holdings Corp. (NASDAQ:VG). Rubric Capital Management had $23.9 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $11.3 million position during the quarter. The other funds with new positions in the stock are Renaissance Technologies, Anthony S. Daffer’s Provenire Capital, and Michael Gelband’s ExodusPoint Capital.

Let’s check out hedge fund activity in other stocks similar to Vonage Holdings Corp. (NASDAQ:VG). We will take a look at Apellis Pharmaceuticals, Inc. (NASDAQ:APLS), Cornerstone OnDemand, Inc. (NASDAQ:CSOD), National General Holdings Corp (NASDAQ:NGHC), Shenandoah Telecommunications Company (NASDAQ:SHEN), Bank of Hawaii Corporation (NYSE:BOH), Option Care Health, Inc. (NASDAQ:OPCH), and Premier Inc (NASDAQ:PINC). This group of stocks’ market valuations are closest to VG’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
APLS 29 563976 -1
CSOD 31 565272 7
NGHC 17 241316 -1
SHEN 8 90518 -3
BOH 18 75639 1
OPCH 11 25219 4
PINC 15 185986 -2
Average 18.4 249704 0.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.4 hedge funds with bullish positions and the average amount invested in these stocks was $250 million. That figure was $258 million in VG’s case. Cornerstone OnDemand, Inc. (NASDAQ:CSOD) is the most popular stock in this table. On the other hand Shenandoah Telecommunications Company (NASDAQ:SHEN) is the least popular one with only 8 bullish hedge fund positions. Vonage Holdings Corp. (NASDAQ:VG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for VG is 80.9. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 23.8% in 2020 through September 14th and beat the market by 17.6 percentage points. Unfortunately VG wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on VG were disappointed as the stock returned 0.5% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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