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Did Hedge Funds Drop The Ball On RingCentral Inc (RNG) ?

Abigail Fisher

After several tireless days we have finished crunching the numbers from nearly 750 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms' equity portfolios as of March 31. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards RingCentral Inc (NYSE:RNG).

RingCentral Inc (NYSE:RNG) shareholders have witnessed a decrease in hedge fund sentiment recently. Our calculations also showed that RNG isn't among the 30 most popular stocks among hedge funds.

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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.

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Let's take a peek at the fresh hedge fund action surrounding RingCentral Inc (NYSE:RNG).

What have hedge funds been doing with RingCentral Inc (NYSE:RNG)?

At Q1's end, a total of 43 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards RNG over the last 15 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

RNG_june2019

The largest stake in RingCentral Inc (NYSE:RNG) was held by Alkeon Capital Management, which reported holding $198.1 million worth of stock at the end of March. It was followed by Tiger Global Management with a $146.1 million position. Other investors bullish on the company included Whale Rock Capital Management, Columbus Circle Investors, and Arrowstreet Capital.

Because RingCentral Inc (NYSE:RNG) has witnessed declining sentiment from hedge fund managers, we can see that there were a few hedge funds that elected to cut their entire stakes heading into Q3. At the top of the heap, Bruce Garelick's Garelick Capital Partners said goodbye to the biggest position of all the hedgies watched by Insider Monkey, worth close to $26.4 million in stock, and David Fiszel's Honeycomb Asset Management was right behind this move, as the fund dumped about $16.5 million worth. These transactions are interesting, as total hedge fund interest was cut by 5 funds heading into Q3.

Let's also examine hedge fund activity in other stocks similar to RingCentral Inc (NYSE:RNG). These stocks are Vail Resorts, Inc. (NYSE:MTN), Westlake Chemical Corporation (NYSE:WLK), Cognex Corporation (NASDAQ:CGNX), and Snap-on Incorporated (NYSE:SNA). This group of stocks' market caps are closest to RNG's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MTN,28,379860,2 WLK,26,364816,2 CGNX,13,230572,0 SNA,25,498590,0 Average,23,368460,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $368 million. That figure was $1208 million in RNG's case. Vail Resorts, Inc. (NYSE:MTN) is the most popular stock in this table. On the other hand Cognex Corporation (NASDAQ:CGNX) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks RingCentral Inc (NYSE:RNG) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on RNG as the stock returned 12% during the same period 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.

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