While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding RingCentral Inc (NYSE:RNG) and see how the stock performed in comparison to hedge funds' consensus picks.
Is RingCentral Inc (NYSE:RNG) the right pick for your portfolio? Money managers are getting more bullish. The number of bullish hedge fund bets advanced by 3 in recent months. Our calculations also showed that RNG isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Keeping this in mind we're going to view the latest hedge fund action surrounding RingCentral Inc (NYSE:RNG).
What have hedge funds been doing with RingCentral Inc (NYSE:RNG)?
At Q3's end, a total of 48 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from the previous quarter. By comparison, 42 hedge funds held shares or bullish call options in RNG a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Tiger Global Management held the most valuable stake in RingCentral Inc (NYSE:RNG), which was worth $410 million at the end of the third quarter. On the second spot was Alkeon Capital Management which amassed $290 million worth of shares. SCGE Management, Two Sigma Advisors, and 12 West Capital Management 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 Hunt Lane Capital allocated the biggest weight to RingCentral Inc (NYSE:RNG), around 9.36% of its 13F portfolio. SCGE Management is also relatively very bullish on the stock, earmarking 6.55 percent of its 13F equity portfolio to RNG.
As aggregate interest increased, some big names have jumped into RingCentral Inc (NYSE:RNG) headfirst. Holocene Advisors, managed by Brandon Haley, created the most outsized position in RingCentral Inc (NYSE:RNG). Holocene Advisors had $60.6 million invested in the company at the end of the quarter. Philippe Laffont's Coatue Management also initiated a $55.6 million position during the quarter. The following funds were also among the new RNG investors: Michel Massoud's Melqart Asset Management, Bernard Selz's Selz Capital, and David Harding's Winton Capital Management.
Let's check out hedge fund activity in other stocks similar to RingCentral Inc (NYSE:RNG). These stocks are Wayfair Inc (NYSE:W), Federal Realty Investment Trust (NYSE:FRT), Mylan N.V. (NASDAQ:MYL), and Brown & Brown, Inc. (NYSE:BRO). This group of stocks' market values are closest to RNG's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position W,30,1831086,-2 FRT,22,146584,-1 MYL,33,1718513,3 BRO,28,810178,7 Average,28.25,1126590,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $1127 million. That figure was $1616 million in RNG's case. Mylan N.V. (NASDAQ:MYL) is the most popular stock in this table. On the other hand Federal Realty Investment Trust (NYSE:FRT) is the least popular one with only 22 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 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on RNG as the stock returned 104.8% so far in 2019 (through 12/23) 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. 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.