Hedge Funds Cashing Out Of Zoetis Inc (ZTS)

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st. We at Insider Monkey have made an extensive database of more than 866 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Zoetis Inc (NYSE:ZTS) based on those filings.

Zoetis Inc (NYSE:ZTS) was in 58 hedge funds’ portfolios at the end of March. The all time high for this statistic is 61. ZTS has experienced a decrease in hedge fund sentiment of late. There were 61 hedge funds in our database with ZTS positions at the end of the fourth quarter. Our calculations also showed that ZTS isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 115 percentage points since March 2017 (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.

Paul Marshall of Marshall Wace

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

At first quarter’s end, a total of 58 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the fourth quarter of 2020. Below, you can check out the change in hedge fund sentiment towards ZTS over the last 23 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Marshall Wace LLP, managed by Paul Marshall and Ian Wace, holds the biggest position in Zoetis Inc (NYSE:ZTS). Marshall Wace LLP has a $420.2 million position in the stock, comprising 1.9% of its 13F portfolio. Sitting at the No. 2 spot is D E Shaw, managed by D. E. Shaw, which holds a $378.6 million position; 0.4% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that are bullish encompass William von Mueffling’s Cantillon Capital Management, Nicolai Tangen’s Ako Capital and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position 0 allocated the biggest weight to Zoetis Inc (NYSE:ZTS), around 4.48% of its 13F portfolio. 0 is also relatively very bullish on the stock, setting aside 4.08 percent of its 13F equity portfolio to ZTS.

Because Zoetis Inc (NYSE:ZTS) has witnessed bearish sentiment from hedge fund managers, it’s easy to see that there lies a certain “tier” of money managers who were dropping their full holdings by the end of the first quarter. Intriguingly, Paul Tudor Jones’s Tudor Investment Corp said goodbye to the biggest stake of the “upper crust” of funds followed by Insider Monkey, totaling close to $8.4 million in stock, and Alexander West’s Blue Pool Capital was right behind this move, as the fund sold off about $6.3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks similar to Zoetis Inc (NYSE:ZTS). These stocks are Crown Castle International Corp. (REIT) (NYSE:CCI), The PNC Financial Services Group Inc. (NYSE:PNC), Duke Energy Corporation (NYSE:DUK), Enbridge Inc (NYSE:ENB), Mercadolibre Inc (NASDAQ:MELI), CME Group Inc (NASDAQ:CME), and CSX Corporation (NASDAQ:CSX). This group of stocks’ market values are similar to ZTS’s market value.

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As you can see these stocks had an average of 45.7 hedge funds with bullish positions and the average amount invested in these stocks was $2069 million. That figure was $3125 million in ZTS’s case. Mercadolibre Inc (NASDAQ:MELI) is the most popular stock in this table. On the other hand Enbridge Inc (NYSE:ENB) is the least popular one with only 22 bullish hedge fund positions. Zoetis Inc (NYSE:ZTS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ZTS is 68.8. 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 17.2% in 2021 through June 11th and still beat the market by 3.3 percentage points. Hedge funds were also right about betting on ZTS as the stock returned 15.9% since the end of Q1 (through 6/11) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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