Were Hedge Funds Right About Piling Into RingCentral Inc (RNG)?

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded RingCentral Inc (NYSE:RNG) and determine whether the smart money was really smart about this stock.

Is RingCentral Inc (NYSE:RNG) a bargain? The best stock pickers were becoming more confident. The number of bullish hedge fund bets inched up by 5 lately. Our calculations also showed that RNG 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.

In today’s marketplace there are numerous gauges stock market investors employ to evaluate their holdings. Some of the less known gauges are hedge fund and insider trading moves. Our experts have shown that, historically, those who follow the best picks of the top money managers can outpace the S&P 500 by a healthy amount (see the details here).

Glen Kacher of Light Street Capital

At Insider Monkey 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 this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a glance at the recent hedge fund action regarding RingCentral Inc (NYSE:RNG).

How are hedge funds trading RingCentral Inc (NYSE:RNG)?

At the end of the first quarter, a total of 67 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards RNG over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

More specifically, Alkeon Capital Management was the largest shareholder of RingCentral Inc (NYSE:RNG), with a stake worth $705.6 million reported as of the end of September. Trailing Alkeon Capital Management was Tiger Global Management LLC, which amassed a stake valued at $704.9 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 12.11% of its 13F portfolio. Cota Capital is also relatively very bullish on the stock, designating 11.22 percent of its 13F equity portfolio to RNG.

As one would reasonably expect, key hedge funds were leading the bulls’ herd. Whale Rock Capital Management, managed by Alex Sacerdote, assembled the largest position in RingCentral Inc (NYSE:RNG). Whale Rock Capital Management had $50.8 million invested in the company at the end of the quarter. Glen Kacher’s Light Street Capital also initiated a $36 million position during the quarter. The other funds with new positions in the stock are Adam Parker’s Center Lake Capital, Josh Resnick’s Jericho Capital Asset Management, and Jacob Doft’s Highline Capital Management.

Let’s go over hedge fund activity in other stocks similar to RingCentral Inc (NYSE:RNG). We will take a look at Southwest Airlines Co. (NYSE:LUV), DTE Energy Company (NYSE:DTE), Delta Air Lines, Inc. (NYSE:DAL), and AmerisourceBergen Corporation (NYSE:ABC). All of these stocks’ market caps are similar to RNG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LUV 45 2344803 1
DTE 29 516788 -6
DAL 53 2970479 -17
ABC 41 634674 1
Average 42 1616686 -5.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 42 hedge funds with bullish positions and the average amount invested in these stocks was $1617 million. That figure was $2828 million in RNG’s case. Delta Air Lines, Inc. (NYSE:DAL) is the most popular stock in this table. On the other hand DTE Energy Company (NYSE:DTE) is the least popular one with only 29 bullish hedge fund positions. Compared to these stocks RingCentral Inc (NYSE:RNG) 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 13.3% in 2020 through June 25th but still managed to beat the market by 16.8 percentage points. Hedge funds were also right about betting on RNG as the stock returned 31.9% so far in Q2 (through June 25th) 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.