Hedge Funds Are Done Buying Zai Lab Limited (ZLAB)

A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended September 30th, so let’s proceed with the discussion of the hedge fund sentiment on Zai Lab Limited (NASDAQ:ZLAB).

Zai Lab Limited (NASDAQ:ZLAB) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 36 hedge funds’ portfolios at the end of September. Our calculations also showed that ZLAB isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). At the end of this article we will also compare ZLAB to other stocks including FirstService Corporation (NASDAQ:FSV), WEX Inc (NYSE:WEX), and Gentex Corporation (NASDAQ:GNTX) to get a better sense of its popularity.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind let’s take a look at the new hedge fund action surrounding Zai Lab Limited (NASDAQ:ZLAB).

Kris Jenner of Rock Springs Capital Management

Do Hedge Funds Think ZLAB Is A Good Stock To Buy Now?

At the end of September, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 28 hedge funds held shares or bullish call options in ZLAB a year ago. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

The largest stake in Zai Lab Limited (NASDAQ:ZLAB) was held by Viking Global, which reported holding $309.1 million worth of stock at the end of September. It was followed by Rock Springs Capital Management with a $113.6 million position. Other investors bullish on the company included Segantii Capital, Hudson Bay Capital Management, and Atika Capital. In terms of the portfolio weights assigned to each position Indus Capital allocated the biggest weight to Zai Lab Limited (NASDAQ:ZLAB), around 3.78% of its 13F portfolio. Segantii Capital is also relatively very bullish on the stock, setting aside 2.41 percent of its 13F equity portfolio to ZLAB.

Seeing as Zai Lab Limited (NASDAQ:ZLAB) has experienced falling interest from the smart money, we can see that there exists a select few funds that decided to sell off their full holdings last quarter. At the top of the heap, Richard Driehaus’s Driehaus Capital dumped the largest stake of the “upper crust” of funds monitored by Insider Monkey, totaling about $44.3 million in stock, and Ting Jia’s Octagon Capital Advisors was right behind this move, as the fund said goodbye to about $19.4 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Zai Lab Limited (NASDAQ:ZLAB) but similarly valued. These stocks are FirstService Corporation (NASDAQ:FSV), WEX Inc (NYSE:WEX), Gentex Corporation (NASDAQ:GNTX), AptarGroup, Inc. (NYSE:ATR), Cosan S.A. (NYSE:CSAN), Rexnord Corp (NYSE:RXN), and TuSimple Holdings Inc. (NASDAQ:TSP). This group of stocks’ market values are closest to ZLAB’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.1 hedge funds with bullish positions and the average amount invested in these stocks was $499 million. That figure was $861 million in ZLAB’s case. Rexnord Corp (NYSE:RXN) is the most popular stock in this table. On the other hand Cosan S.A. (NYSE:CSAN) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Zai Lab Limited (NASDAQ:ZLAB) is more popular among hedge funds. Our overall hedge fund sentiment score for ZLAB is 85. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.6% in 2021 through November 30th and still beat the market by 5.6 percentage points. Unfortunately ZLAB wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on ZLAB were disappointed as the stock returned -34.3% since the end of the third quarter (through 11/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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