Hedge funds are not perfect. They have their bad picks just like everyone else. Facebook, a stock hedge funds have loved dearly, lost nearly 40% of its value at one point in 2018. Although hedge funds are not perfect, their consensus picks do deliver solid returns, however. Our data show the top 20 S&P 500 stocks among hedge funds beat the S&P 500 Index by nearly 10 percentage points so far in 2019. Because hedge funds have a lot of resources and their consensus picks do well, we pay attention to what they think. In this article, we analyze what the elite funds think of Zix Corporation (NASDAQ:ZIXI).
Is Zix Corporation (NASDAQ:ZIXI) a sound investment today? Investors who are in the know are in an optimistic mood. The number of long hedge fund positions moved up by 5 in recent months. Our calculations also showed that ZIXI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 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 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 stocks that are in our short portfolio.
Noam Gottesman of GLG Partners
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s go over the latest hedge fund action regarding Zix Corporation (NASDAQ:ZIXI).
Hedge fund activity in Zix Corporation (NASDAQ:ZIXI)
At Q3’s end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 36% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ZIXI over the last 17 quarters. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Zix Corporation (NASDAQ:ZIXI), which was worth $25.7 million at the end of the third quarter. On the second spot was Portolan Capital Management which amassed $12.8 million worth of shares. Arrowstreet Capital, AQR Capital Management, and GLG Partners 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 Becker Drapkin Management allocated the biggest weight to Zix Corporation (NASDAQ:ZIXI), around 3.75% of its 13F portfolio. Portolan Capital Management is also relatively very bullish on the stock, dishing out 1.44 percent of its 13F equity portfolio to ZIXI.
As industrywide interest jumped, key hedge funds were breaking ground themselves. Portolan Capital Management, managed by George McCabe, created the most valuable position in Zix Corporation (NASDAQ:ZIXI). Portolan Capital Management had $12.8 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also made a $0.5 million investment in the stock during the quarter. The other funds with brand new ZIXI positions are Michael Gelband’s ExodusPoint Capital, Ken Griffin’s Citadel Investment Group, and Nick Thakore’s Diametric Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Zix Corporation (NASDAQ:ZIXI) but similarly valued. These stocks are Summit Midstream Partners LP (NYSE:SMLP), Sprague Resources LP (NYSE:SRLP), Legacy Housing Corporation (NASDAQ:LEGH), and Farmers National Banc Corp (NASDAQ:FMNB). This group of stocks’ market caps are closest to ZIXI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SMLP | 1 | 78 | -3 |
| SRLP | 1 | 1076 | -1 |
| LEGH | 4 | 5577 | 1 |
| FMNB | 7 | 13223 | 1 |
| Average | 3.25 | 4989 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.25 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $68 million in ZIXI’s case. Farmers National Banc Corp (NASDAQ:FMNB) is the most popular stock in this table. On the other hand Summit Midstream Partners LP (NYSE:SMLP) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Zix Corporation (NASDAQ:ZIXI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately ZIXI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ZIXI were disappointed as the stock returned 4.1% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
