Were Hedge Funds Right About Vonage Holdings Corp. (VG)?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (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. 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 have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider Vonage Holdings Corp. (NASDAQ:VG) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.

Is Vonage Holdings Corp. (NASDAQ:VG) a healthy stock for your portfolio? Investors who are in the know are becoming more confident. The number of long hedge fund bets advanced by 2 in recent months. Our calculations also showed that VG isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). VG was in 35 hedge funds’ portfolios at the end of December. There were 33 hedge funds in our database with VG positions at the end of the previous quarter.

According to most traders, hedge funds are viewed as slow, old investment tools of yesteryear. While there are greater than 8000 funds trading at the moment, Our experts look at the elite of this group, about 850 funds. These money managers command bulk of the hedge fund industry’s total capital, and by tailing their best picks, Insider Monkey has determined various investment strategies that have historically exceeded Mr. Market. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Jeremy Mindich - Scopia Capital

Jeremy Mindich of Scopia Capital

We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. 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 (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). 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. Keeping this in mind let’s check out the key hedge fund action regarding Vonage Holdings Corp. (NASDAQ:VG).

How are hedge funds trading Vonage Holdings Corp. (NASDAQ:VG)?

At Q4’s end, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards VG over the last 18 quarters. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

More specifically, Scopia Capital was the largest shareholder of Vonage Holdings Corp. (NASDAQ:VG), with a stake worth $89.8 million reported as of the end of September. Trailing Scopia Capital was Legion Partners Asset Management, which amassed a stake valued at $37.1 million. Millennium Management, Point72 Asset Management, and Citadel Investment Group 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 Legion Partners Asset Management allocated the biggest weight to Vonage Holdings Corp. (NASDAQ:VG), around 9.62% of its 13F portfolio. Scopia Capital is also relatively very bullish on the stock, dishing out 6.96 percent of its 13F equity portfolio to VG.

As aggregate interest increased, some big names were breaking ground themselves. Renaissance Technologies, created the most valuable position in Vonage Holdings Corp. (NASDAQ:VG). Renaissance Technologies had $5.7 million invested in the company at the end of the quarter. Andrew Kurita’s Kettle Hill Capital Management also made a $4.4 million investment in the stock during the quarter. The following funds were also among the new VG investors: Bernard Selz’s Selz Capital, David Rosen’s Rubric Capital Management, and John Overdeck and David Siegel’s Two Sigma Advisors.

Let’s now take a look at hedge fund activity in other stocks similar to Vonage Holdings Corp. (NASDAQ:VG). We will take a look at Diversified Healthcare Trust (NASDAQ:SNH), iRhythm Technologies, Inc. (NASDAQ:IRTC), Horace Mann Educators Corporation (NYSE:HMN), and Healthcare Services Group, Inc. (NASDAQ:HCSG). This group of stocks’ market valuations match VG’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SNH 9 32625 -4
IRTC 22 222026 3
HMN 11 29285 -3
HCSG 18 101640 2
Average 15 96394 -0.5

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 $96 million. That figure was $269 million in VG’s case. iRhythm Technologies, Inc. (NASDAQ:IRTC) is the most popular stock in this table. On the other hand Diversified Healthcare Trust (NASDAQ:SNH) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Vonage Holdings Corp. (NASDAQ:VG) is more popular among hedge funds. 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 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but still managed to beat the market by 4.2 percentage points. Hedge funds were also right about betting on VG as the stock returned 5.7% so far in 2020 (through April 6th) 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.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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