The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 817 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of September 30th, about a month before the elections. In this article we look at what those investors think of RingCentral Inc (NYSE:RNG).
Is RNG a good stock to buy now? RingCentral Inc (NYSE:RNG) has experienced a decrease in enthusiasm from smart money in recent months. RingCentral Inc (NYSE:RNG) was in 59 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 67. Our calculations also showed that RNG isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. 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. With all of this in mind let’s take a glance at the new hedge fund action regarding RingCentral Inc (NYSE:RNG).
What does smart money think about RingCentral Inc (NYSE:RNG)?
At the end of September, a total of 59 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the second quarter of 2020. On the other hand, there were a total of 52 hedge funds with a bullish position in RNG 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.
More specifically, Alkeon Capital Management was the largest shareholder of RingCentral Inc (NYSE:RNG), with a stake worth $1003.7 million reported as of the end of September. Trailing Alkeon Capital Management was Tiger Global Management LLC, which amassed a stake valued at $913.5 million. SCGE Management, Zevenbergen Capital Investments, and SQN Investors 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 RingCentral Inc (NYSE:RNG), around 9.3% of its 13F portfolio. Cota Capital is also relatively very bullish on the stock, setting aside 7.92 percent of its 13F equity portfolio to RNG.
Seeing as RingCentral Inc (NYSE:RNG) has experienced bearish sentiment from the entirety of the hedge funds we track, we can see that there exists a select few hedge funds who sold off their entire stakes in the third quarter. Intriguingly, Alex Sacerdote’s Whale Rock Capital Management said goodbye to the biggest stake of all the hedgies tracked by Insider Monkey, totaling an estimated $97.5 million in stock. Josh Resnick’s fund, Jericho Capital Asset Management, also dropped its stock, about $88 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 3 funds in the third quarter.
Let’s also examine hedge fund activity in other stocks similar to RingCentral Inc (NYSE:RNG). These stocks are Credit Suisse Group AG (NYSE:CS), Skyworks Solutions Inc (NASDAQ:SWKS), China Telecom Corporation Limited (NYSE:CHA), The Trade Desk, Inc. (NASDAQ:TTD), McKesson Corporation (NYSE:MCK), Williams Companies, Inc. (NYSE:WMB), and Sun Life Financial Inc. (NYSE:SLF). All of these stocks’ market caps resemble RNG’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.7 hedge funds with bullish positions and the average amount invested in these stocks was $554 million. That figure was $3301 million in RNG’s case. McKesson Corporation (NYSE:MCK) is the most popular stock in this table. On the other hand China Telecom Corporation Limited (NYSE:CHA) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks RingCentral Inc (NYSE:RNG) is more popular among hedge funds. Our overall hedge fund sentiment score for RNG is 78.4. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 31.6% in 2020 through December 2nd but still managed to beat the market by 16 percentage points. Hedge funds were also right about betting on RNG as the stock returned 19.9% since the end of September (through 12/2) 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.