World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients’ money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It’s not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It’s also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.
Vonage Holdings Corp. (NYSE:VG) shareholders have witnessed an increase in enthusiasm from smart money recently. Our calculations also showed that VG isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to 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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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 analyze the recent hedge fund action regarding Vonage Holdings Corp. (NYSE:VG).
What does smart money think about Vonage Holdings Corp. (NYSE:VG)?
Heading into the third quarter of 2019, a total of 39 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from the previous quarter. By comparison, 19 hedge funds held shares or bullish call options in VG a year ago. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
The largest stake in Vonage Holdings Corp. (NYSE:VG) was held by Scopia Capital, which reported holding $99.3 million worth of stock at the end of March. It was followed by Legion Partners Asset Management with a $56.8 million position. Other investors bullish on the company included Holocene Advisors, Point72 Asset Management, and Kerrisdale Capital.
Now, key hedge funds have jumped into Vonage Holdings Corp. (NYSE:VG) headfirst. Select Equity Group, managed by Robert Joseph Caruso, created the biggest position in Vonage Holdings Corp. (NYSE:VG). Select Equity Group had $18 million invested in the company at the end of the quarter. Philip Hilal’s Clearfield Capital also initiated a $16.6 million position during the quarter. The other funds with new positions in the stock are Craig C. Albert’s Sheffield Asset Management, Andrew Weiss’s Weiss Asset Management, and Robert Henry Lynch’s Aristeia Capital.
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. We will take a look at Valmont Industries, Inc. (NYSE:VMI), GATX Corporation (NYSE:GATX), Dana Incorporated (NYSE:DAN), and Rapid7 Inc (NASDAQ:RPD). All of these stocks’ market caps are closest to VG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VMI | 25 | 294997 | 6 |
| GATX | 13 | 224982 | 2 |
| DAN | 25 | 363492 | -2 |
| RPD | 25 | 386339 | -2 |
| Average | 22 | 317453 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $317 million. That figure was $361 million in VG’s case. Valmont Industries, Inc. (NYSE:VMI) is the most popular stock in this table. On the other hand GATX Corporation (NYSE:GATX) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Vonage Holdings Corp. (NYSE:VG) 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. Unfortunately VG wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on VG were disappointed as the stock returned -0.3% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market in Q3.
Disclosure: None. This article was originally published at Insider Monkey.
