Hedge Funds Are Selling Zillow Group Inc (Z)

In this article we will take a look at whether hedge funds think Zillow Group Inc (NASDAQ:Z) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is Zillow Group Inc (NASDAQ:Z) ready to rally soon? The smart money was selling. The number of long hedge fund bets dropped by 6 recently. Zillow Group Inc (NASDAQ:Z) was in 76 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 83. Our calculations also showed that Z isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Gil Simon of SoMa Equity Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium 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. Keeping this in mind we’re going to view the new hedge fund action surrounding Zillow Group Inc (NASDAQ:Z).

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

Heading into the third quarter of 2021, a total of 76 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards Z over the last 24 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Catherine D. Wood’s 0 has the biggest position in Zillow Group Inc (NASDAQ:Z), worth close to $1.2405 billion, accounting for 2.3% of its total 13F portfolio. The second largest stake is held by Karthik Sarma of 0, with a $892.8 million position; 13.2% of its 13F portfolio is allocated to the company. Some other members of the smart money with similar optimism comprise Philippe Laffont’s 0, Gil Simon’s 0 and Nancy Zevenbergen’s 0. In terms of the portfolio weights assigned to each position Kuvari Partners allocated the biggest weight to Zillow Group Inc (NASDAQ:Z), around 26.46% of its 13F portfolio. SRS Investment Management is also relatively very bullish on the stock, designating 13.23 percent of its 13F equity portfolio to Z.

Since Zillow Group Inc (NASDAQ:Z) has experienced falling interest from the entirety of the hedge funds we track, it’s safe to say that there exists a select few funds who were dropping their positions entirely in the second quarter. At the top of the heap, Dan Loeb’s Third Point cut the largest position of all the hedgies watched by Insider Monkey, comprising close to $140.7 million in stock, and Andrew Weiss’s Weiss Asset Management was right behind this move, as the fund dumped about $83.6 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 6 funds in the second quarter.

Let’s also examine hedge fund activity in other stocks similar to Zillow Group Inc (NASDAQ:Z). We will take a look at ANSYS, Inc. (NASDAQ:ANSS), Fomento Económico Mexicano, S.A.B. de C.V. (NYSE:FMX), SVB Financial Group (NASDAQ:SIVB), Public Service Enterprise Group Incorporated (NYSE:PEG), Sun Life Financial Inc. (NYSE:SLF), Ecopetrol S.A. (NYSE:EC), and Nokia Corporation (NYSE:NOK). This group of stocks’ market valuations are similar to Z’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.3 hedge funds with bullish positions and the average amount invested in these stocks was $640 million. That figure was $5244 million in Z’s case. SVB Financial Group (NASDAQ:SIVB) is the most popular stock in this table. On the other hand Ecopetrol S.A. (NYSE:EC) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Zillow Group Inc (NASDAQ:Z) is more popular among hedge funds. Our overall hedge fund sentiment score for Z is 76.5. 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 25.7% in 2021 through September 27th and still beat the market by 6.2 percentage points. Unfortunately Z wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on Z were disappointed as the stock returned -26% since the end of the second quarter (through 9/27) 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.