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Were Hedge Funds Right About Five9 Inc (FIVN)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Five9 Inc (NASDAQ:FIVN) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Five9 Inc (NASDAQ:FIVN) was in 33 hedge funds’ portfolios at the end of the first quarter of 2020. FIVN has seen a decrease in support from the world’s most elite money managers recently. There were 35 hedge funds in our database with FIVN positions at the end of the previous quarter. Our calculations also showed that FIVN 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was 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’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.

Glen Kacher of Light Street Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to analyze the latest hedge fund action encompassing Five9 Inc (NASDAQ:FIVN).

What does smart money think about Five9 Inc (NASDAQ:FIVN)?

At Q1’s end, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the fourth quarter of 2019. On the other hand, there were a total of 25 hedge funds with a bullish position in FIVN a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Panayotis Takis Sparaggis’s Alkeon Capital Management has the biggest position in Five9 Inc (NASDAQ:FIVN), worth close to $176.8 million, corresponding to 0.8% of its total 13F portfolio. Coming in second is Daniel Patrick Gibson of Sylebra Capital Management, with a $136.1 million position; 5.6% of its 13F portfolio is allocated to the stock. Remaining peers that hold long positions include Alex Sacerdote’s Whale Rock Capital Management, Glen Kacher’s Light Street Capital and Amish Mehta’s SQN Investors. In terms of the portfolio weights assigned to each position Alta Park Capital allocated the biggest weight to Five9 Inc (NASDAQ:FIVN), around 7.04% of its 13F portfolio. Sylebra Capital Management is also relatively very bullish on the stock, earmarking 5.57 percent of its 13F equity portfolio to FIVN.

Seeing as Five9 Inc (NASDAQ:FIVN) has faced declining sentiment from the entirety of the hedge funds we track, we can see that there is a sect of hedgies who sold off their full holdings in the first quarter. It’s worth mentioning that Brett Barakett’s Tremblant Capital dumped the largest investment of the 750 funds monitored by Insider Monkey, comprising an estimated $77.7 million in stock. Israel Englander’s fund, Millennium Management, also dropped its stock, about $10.4 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 2 funds in the first quarter.

Let’s go over hedge fund activity in other stocks similar to Five9 Inc (NASDAQ:FIVN). We will take a look at Columbia Sportswear Company (NASDAQ:COLM), Hawaiian Electric Industries, Inc. (NYSE:HE), Rexford Industrial Realty Inc (NYSE:REXR), and Trex Company, Inc. (NYSE:TREX). This group of stocks’ market valuations match FIVN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
COLM 15 51797 -8
HE 13 190462 -4
REXR 15 38931 -6
TREX 17 93470 -3
Average 15 93665 -5.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $94 million. That figure was $716 million in FIVN’s case. Trex Company, Inc. (NYSE:TREX) is the most popular stock in this table. On the other hand Hawaiian Electric Industries, Inc. (NYSE:HE) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Five9 Inc (NASDAQ:FIVN) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on FIVN as the stock returned 44.7% in Q2 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.

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