Were Hedge Funds Right About RingCentral Inc (RNG)?

Reymerlyn Martin
·6 min read

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 823 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about RingCentral Inc (NYSE:RNG) in this article.

RingCentral Inc (NYSE:RNG) investors should pay attention to a decrease in activity from the world's largest hedge funds of late. RingCentral Inc (NYSE:RNG) was in 62 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 67. Our calculations also showed that RNG isn't among the 30 most popular stocks among hedge funds (click for Q2 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 the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Phill Gross Adage Capital Phillip Gross
Phill Gross Adage Capital Phillip Gross

Phillip Gross of Adage Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we're going to take a gander at the fresh hedge fund action encompassing RingCentral Inc (NYSE:RNG).

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

Heading into the third quarter of 2020, a total of 62 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the previous quarter. By comparison, 45 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, Alkeon Capital Management held the most valuable stake in RingCentral Inc (NYSE:RNG), which was worth $1041.7 million at the end of the third quarter. On the second spot was Tiger Global Management LLC which amassed $948 million worth of shares. 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 9.87% of its 13F portfolio. Cota Capital is also relatively very bullish on the stock, dishing out 8.71 percent of its 13F equity portfolio to RNG.

Due to the fact that RingCentral Inc (NYSE:RNG) has experienced a decline in interest from the aggregate hedge fund industry, logic holds that there lies a certain "tier" of fund managers that decided to sell off their entire stakes by the end of the second quarter. It's worth mentioning that Philippe Laffont's Coatue Management said goodbye to the biggest investment of the "upper crust" of funds tracked by Insider Monkey, comprising close to $110.7 million in stock, and Brian Ashford-Russell and Tim Woolley's Polar Capital was right behind this move, as the fund dropped about $71.8 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 5 funds by the end of the second quarter.

Let's go over hedge fund activity in other stocks similar to RingCentral Inc (NYSE:RNG). These stocks are PPG Industries, Inc. (NYSE:PPG), ANSYS, Inc. (NASDAQ:ANSS), Okta, Inc. (NASDAQ:OKTA), HP Inc. (NYSE:HPQ), McKesson Corporation (NYSE:MCK), Public Service Enterprise Group Incorporated (NYSE:PEG), and Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN). All of these stocks' market caps resemble RNG's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PPG,36,261423,1 ANSS,40,1322878,9 OKTA,60,1990664,12 HPQ,35,1106876,-8 MCK,61,1958790,-2 PEG,31,649382,-3 ALXN,57,3577628,1 Average,45.7,1552520,1.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 45.7 hedge funds with bullish positions and the average amount invested in these stocks was $1553 million. That figure was $3647 million in RNG's case. McKesson Corporation (NYSE:MCK) is the most popular stock in this table. On the other hand Public Service Enterprise Group Incorporated (NYSE:PEG) is the least popular one with only 31 bullish hedge fund positions. Compared to these stocks RingCentral Inc (NYSE:RNG) is more popular among hedge funds. Our overall hedge fund sentiment score for RNG is 77.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 gained 29.2% in 2020 through October 16th and still beat the market by 19.7 percentage points. Unfortunately RNG wasn't nearly as popular as these 10 stocks and hedge funds that were betting on RNG were disappointed as the stock returned -1.8% since the end of the second quarter (through 10/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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

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