Last year’s fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 41.1% in 2019 (through December 23) and outperformed the S&P 500 ETF by more than 10 percentage points. In this article we will study how hedge fund sentiment towards Zogenix, Inc. (NASDAQ:ZGNX) changed during the third quarter and how the stock performed in comparison to hedge fund consensus stocks.
Zogenix, Inc. (NASDAQ:ZGNX) investors should pay attention to an increase in hedge fund sentiment of late. ZGNX was in 34 hedge funds’ portfolios at the end of September. There were 28 hedge funds in our database with ZGNX holdings at the end of the previous quarter. Our calculations also showed that ZGNX 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).
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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.
Peter Kolchinsky of RA Capital Management
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. Now let’s check out the key hedge fund action surrounding Zogenix, Inc. (NASDAQ:ZGNX).
How are hedge funds trading Zogenix, Inc. (NASDAQ:ZGNX)?
Heading into the fourth quarter of 2019, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 21% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ZGNX over the last 17 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Eric Bannasch’s Cadian Capital has the largest position in Zogenix, Inc. (NASDAQ:ZGNX), worth close to $139.1 million, comprising 6.6% of its total 13F portfolio. Sitting at the No. 2 spot is Perceptive Advisors, led by Joseph Edelman, holding a $130.7 million position; 3.5% of its 13F portfolio is allocated to the company. Remaining professional money managers that are bullish consist of Peter Kolchinsky’s RA Capital Management, Jeffrey Jay and David Kroin’s Great Point Partners and Behzad Aghazadeh’s venBio Select Advisor. In terms of the portfolio weights assigned to each position Eversept Partners allocated the biggest weight to Zogenix, Inc. (NASDAQ:ZGNX), around 8.05% of its 13F portfolio. Great Point Partners is also relatively very bullish on the stock, setting aside 7.36 percent of its 13F equity portfolio to ZGNX.
As industrywide interest jumped, key money managers have been driving this bullishness. Millennium Management, managed by Israel Englander, created the largest call position in Zogenix, Inc. (NASDAQ:ZGNX). Millennium Management had $19.2 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $13.3 million investment in the stock during the quarter. The following funds were also among the new ZGNX investors: Jeffrey Jay and David Kroin’s Great Point Partners, Arthur B Cohen and Joseph Healey’s Healthcor Management, and Dmitry Balyasny’s Balyasny Asset Management.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Zogenix, Inc. (NASDAQ:ZGNX) but similarly valued. We will take a look at NGL Energy Partners LP (NYSE:NGL), LexinFintech Holdings Ltd. (NASDAQ:LX), Heartland Express, Inc. (NASDAQ:HTLD), and Vector Group Ltd (NYSE:VGR). This group of stocks’ market caps are closest to ZGNX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NGL | 4 | 38721 | 0 |
| LX | 15 | 75258 | 0 |
| HTLD | 17 | 46403 | 4 |
| VGR | 17 | 170355 | -1 |
| Average | 13.25 | 82684 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $83 million. That figure was $834 million in ZGNX’s case. Heartland Express, Inc. (NASDAQ:HTLD) is the most popular stock in this table. On the other hand NGL Energy Partners LP (NYSE:NGL) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Zogenix, Inc. (NASDAQ:ZGNX) 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 ZGNX as the stock returned 46.3% 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.
