Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Zai Lab Limited (NASDAQ:ZLAB).
Is Zai Lab Limited (NASDAQ:ZLAB) a buy, sell, or hold? Money managers were in an optimistic mood. The number of bullish hedge fund bets increased by 4 in recent months. Zai Lab Limited (NASDAQ:ZLAB) was in 36 hedge funds’ portfolios at the end of June. The all time high for this statistic is 32. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ZLAB isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 32 hedge funds in our database with ZLAB holdings at the end of March.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 79 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Sander Gerber of Hudson Bay Capital Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. 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. 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 homepage. Now let’s view the fresh hedge fund action surrounding Zai Lab Limited (NASDAQ:ZLAB).
Do Hedge Funds Think ZLAB Is A Good Stock To Buy Now?
At second quarter’s end, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ZLAB over the last 24 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, 0, managed by Andreas Halvorsen, holds the most valuable position in Zai Lab Limited (NASDAQ:ZLAB). Viking Global has a $272.4 million position in the stock, comprising 0.8% of its 13F portfolio. The second most bullish fund manager is 0, managed by Kris Jenner, Gordon Bussard, Graham McPhail, which holds a $179.5 million position; the fund has 3.5% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism comprise Simon Sadler’s 0, Sander Gerber’s 0 and Brad Farber’s 0. In terms of the portfolio weights assigned to each position Indus Capital allocated the biggest weight to Zai Lab Limited (NASDAQ:ZLAB), around 7.86% of its 13F portfolio. Octagon Capital Advisors is also relatively very bullish on the stock, setting aside 4.01 percent of its 13F equity portfolio to ZLAB.
Now, key money managers were leading the bulls’ herd. Octagon Capital Advisors, managed by Ting Jia, initiated the largest position in Zai Lab Limited (NASDAQ:ZLAB). Octagon Capital Advisors had $19.4 million invested in the company at the end of the quarter. Philip Best’s Quaero Capital also initiated a $3.6 million position during the quarter. The following funds were also among the new ZLAB investors: James Xinjun Tu’s Long Corridor Asset Management, Ronald Hua’s Qtron Investments, and Paul Marshall and Ian Wace’s Marshall Wace LLP.
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. We will take a look at Nuance Communications Inc. (NASDAQ:NUAN), IDEX Corporation (NYSE:IEX), Entegris Inc (NASDAQ:ENTG), VICI Properties Inc. (NYSE:VICI), Dynatrace, Inc. (NYSE:DT), Cardinal Health, Inc. (NYSE:CAH), and PTC Inc (NASDAQ:PTC). This group of stocks’ market values resemble ZLAB’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NUAN | 72 | 5576065 | 15 |
| IEX | 22 | 945302 | 3 |
| ENTG | 25 | 1389606 | 2 |
| VICI | 37 | 664684 | -4 |
| DT | 50 | 1949953 | -2 |
| CAH | 40 | 897223 | 1 |
| PTC | 31 | 1958876 | -2 |
| Average | 39.6 | 1911673 | 1.9 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 39.6 hedge funds with bullish positions and the average amount invested in these stocks was $1912 million. That figure was $1029 million in ZLAB’s case. Nuance Communications Inc. (NASDAQ:NUAN) is the most popular stock in this table. On the other hand IDEX Corporation (NYSE:IEX) is the least popular one with only 22 bullish hedge fund positions. Zai Lab Limited (NASDAQ:ZLAB) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ZLAB is 53. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 21.8% in 2021 through October 11th and surpassed the market again by 4.4 percentage points. Unfortunately ZLAB wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); ZLAB investors were disappointed as the stock returned -42.5% since the end of June (through 10/11) 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 in 2021.
Follow Zai Lab Ltd (NASDAQ:ZLAB)
Follow Zai Lab Ltd (NASDAQ:ZLAB)
Suggested Articles:
- Top 20 US Egg Producers in 2021
- Larry Robbins’ Top Stock Picks
- 15 Billionaires Who Came From Nothing
Disclosure: None. This article was originally published at Insider Monkey.
