In this article we will check out the progression of hedge fund sentiment towards Vonage Holdings Corp. (NASDAQ:VG) and determine whether it is a good investment 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 employ 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.
Vonage Holdings Corp. (NASDAQ:VG) has experienced a decrease in enthusiasm from smart money recently. VG was in 25 hedge funds’ portfolios at the end of the first quarter of 2020. There were 35 hedge funds in our database with VG positions at the end of the previous quarter. 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.
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 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 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.
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s go over the key hedge fund action regarding Vonage Holdings Corp. (NASDAQ:VG).
Hedge fund activity in Vonage Holdings Corp. (NASDAQ:VG)
At Q1’s end, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards VG over the last 18 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
The largest stake in Vonage Holdings Corp. (NASDAQ:VG) was held by Scopia Capital, which reported holding $60.2 million worth of stock at the end of September. It was followed by Legion Partners Asset Management with a $45.8 million position. Other investors bullish on the company included Nantahala Capital Management, Point72 Asset Management, and 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. (NASDAQ:VG), around 19.33% of its 13F portfolio. Scopia Capital is also relatively very bullish on the stock, earmarking 5.5 percent of its 13F equity portfolio to VG.
Since Vonage Holdings Corp. (NASDAQ:VG) has faced falling interest from the entirety of the hedge funds we track, logic holds that there was a specific group of hedge funds who sold off their positions entirely heading into Q4. Interestingly, Renaissance Technologies said goodbye to the biggest position of the 750 funds tracked by Insider Monkey, comprising about $5.7 million in stock. Bernard Selz’s fund, Selz Capital, also dumped its stock, about $2.8 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 10 funds heading into Q4.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Vonage Holdings Corp. (NASDAQ:VG) but similarly valued. We will take a look at BankUnited Inc (NYSE:BKU), PolyOne Corporation (NYSE:POL), International Bancshares Corp (NASDAQ:IBOC), and Baozun Inc (NASDAQ:BZUN). This group of stocks’ market values are closest to VG’s market value.
|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 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. (NASDAQ: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 13.9% in 2020 through June 10th but still beat the market by 14.2 percentage points. Hedge funds were also right about betting on VG as the stock returned 44.1% in Q2 (through June 10th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.