Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 20% in 2019 (through September 30th). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of 24% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Zix Corporation (NASDAQ:ZIXI).
Zix Corporation (NASDAQ:ZIXI) investors should be aware of a decrease in hedge fund interest lately. Our calculations also showed that ZIXI isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a look at the new hedge fund action surrounding Zix Corporation (NASDAQ:ZIXI).
What does smart money think about Zix Corporation (NASDAQ:ZIXI)?
At the end of the second quarter, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -33% from the first quarter of 2019. By comparison, 14 hedge funds held shares or bullish call options in ZIXI a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Zix Corporation (NASDAQ:ZIXI), which was worth $36 million at the end of the second quarter. On the second spot was D E Shaw which amassed $8.7 million worth of shares. Moreover, GLG Partners, AQR Capital Management, and Arrowstreet Capital were also bullish on Zix Corporation (NASDAQ:ZIXI), allocating a large percentage of their portfolios to this stock.
Since Zix Corporation (NASDAQ:ZIXI) has experienced bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there exists a select few hedgies that elected to cut their positions entirely last quarter. It’s worth mentioning that Ken Griffin’s Citadel Investment Group said goodbye to the biggest position of the “upper crust” of funds monitored by Insider Monkey, comprising an estimated $0.9 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also said goodbye to its stock, about $0.7 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 7 funds last quarter.
Let’s check out hedge fund activity in other stocks similar to Zix Corporation (NASDAQ:ZIXI). We will take a look at Heritage Commerce Corp (NASDAQ:HTBK), Marine Products Corporation (NYSE:MPX), A10 Networks Inc (NYSE:ATEN), and Vista Outdoor Inc (NYSE:VSTO). This group of stocks’ market valuations are closest to ZIXI’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HTBK | 8 | 29318 | 1 |
| MPX | 5 | 18141 | -1 |
| ATEN | 15 | 102500 | -3 |
| VSTO | 16 | 72142 | -1 |
| Average | 11 | 55525 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $56 million. That figure was $75 million in ZIXI’s case. Vista Outdoor Inc (NYSE:VSTO) is the most popular stock in this table. On the other hand Marine Products Corporation (NYSE:MPX) is the least popular one with only 5 bullish hedge fund positions. Zix Corporation (NASDAQ:ZIXI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 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 -20.4% during the third 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
