How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Zillow Group Inc (NASDAQ:Z) and determine whether hedge funds had an edge regarding this stock.
Zillow Group Inc (NASDAQ:Z) shareholders have witnessed an increase in enthusiasm from smart money recently. Zillow Group Inc (NASDAQ:Z) was in 59 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 51. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 37 hedge funds in our database with Z holdings at the end of March. Our calculations also showed that Z isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Steven Cohen of Point72 Asset Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now we’re going to check out the recent hedge fund action surrounding Zillow Group Inc (NASDAQ:Z).
How have hedgies been trading Zillow Group Inc (NASDAQ:Z)?
At the end of June, a total of 59 of the hedge funds tracked by Insider Monkey were long this stock, a change of 59% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards Z over the last 20 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.
The largest stake in Zillow Group Inc (NASDAQ:Z) was held by SRS Investment Management, which reported holding $565.2 million worth of stock at the end of September. It was followed by Jericho Capital Asset Management with a $155.5 million position. Other investors bullish on the company included Citadel Investment Group, Matrix Capital Management, and Zevenbergen Capital Investments. In terms of the portfolio weights assigned to each position Thrive Capital allocated the biggest weight to Zillow Group Inc (NASDAQ:Z), around 92.43% of its 13F portfolio. Ancient Art (Teton Capital) is also relatively very bullish on the stock, setting aside 14.76 percent of its 13F equity portfolio to Z.
Now, specific money managers were leading the bulls’ herd. Jericho Capital Asset Management, managed by Josh Resnick, created the biggest position in Zillow Group Inc (NASDAQ:Z). Jericho Capital Asset Management had $155.5 million invested in the company at the end of the quarter. Alexander Mitchell’s Scopus Asset Management also initiated a $54.7 million position during the quarter. The other funds with brand new Z positions are Steve Cohen’s Point72 Asset Management, Renaissance Technologies, and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Zillow Group Inc (NASDAQ:Z) but similarly valued. We will take a look at Markel Corporation (NYSE:MKL), SK Telecom Co., Ltd. (NYSE:SKM), Insulet Corporation (NASDAQ:PODD), J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT), Expeditors International of Washington, Inc. (NASDAQ:EXPD), Qorvo Inc (NASDAQ:QRVO), and Etsy Inc (NASDAQ:ETSY). This group of stocks’ market values are closest to Z’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MKL | 33 | 943795 | 1 |
| SKM | 8 | 129598 | 3 |
| PODD | 44 | 985462 | 8 |
| JBHT | 24 | 215950 | -1 |
| EXPD | 33 | 443457 | 2 |
| QRVO | 51 | 1608774 | 12 |
| ETSY | 43 | 1727421 | 5 |
| Average | 33.7 | 864922 | 4.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.7 hedge funds with bullish positions and the average amount invested in these stocks was $865 million. That figure was $2300 million in Z’s case. Qorvo Inc (NASDAQ:QRVO) is the most popular stock in this table. On the other hand SK Telecom Co., Ltd. (NYSE:SKM) is the least popular one with only 8 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 90. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 28.2% in 2020 through August 24th but still managed to beat the market by 20.6 percentage points. Hedge funds were also right about betting on Z as the stock returned 45.1% since the end of June and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.
