We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Zymeworks Inc. (NYSE:ZYME) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Zymeworks Inc. (NYSE:ZYME) investors should be aware of an increase in hedge fund sentiment recently. Our calculations also showed that ZYME isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ken Griffin of Citadel Investment Group
We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to analyze the fresh hedge fund action encompassing Zymeworks Inc. (NYSE:ZYME).
How have hedgies been trading Zymeworks Inc. (NYSE:ZYME)?
At Q4’s end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 50% from the third quarter of 2019. On the other hand, there were a total of 11 hedge funds with a bullish position in ZYME a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
Among these funds, Perceptive Advisors held the most valuable stake in Zymeworks Inc. (NYSE:ZYME), which was worth $109.2 million at the end of the third quarter. On the second spot was Great Point Partners which amassed $101.1 million worth of shares. Baker Bros. Advisors, Farallon Capital, and Vivo Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Great Point Partners allocated the biggest weight to Zymeworks Inc. (NYSE:ZYME), around 8.8% of its 13F portfolio. Vivo Capital is also relatively very bullish on the stock, dishing out 4.98 percent of its 13F equity portfolio to ZYME.
As aggregate interest increased, specific money managers have jumped into Zymeworks Inc. (NYSE:ZYME) headfirst. Cormorant Asset Management, managed by Bihua Chen, assembled the most valuable position in Zymeworks Inc. (NYSE:ZYME). Cormorant Asset Management had $31.8 million invested in the company at the end of the quarter. Arsani William’s Logos Capital also initiated a $17.7 million position during the quarter. The following funds were also among the new ZYME investors: Ken Griffin’s Citadel Investment Group, Robert Pohly’s Samlyn Capital, and Michael Rockefeller and Karl Kroeker’s Woodline Partners.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Zymeworks Inc. (NYSE:ZYME) but similarly valued. These stocks are Inspire Medical Systems, Inc. (NYSE:INSP), Winnebago Industries, Inc. (NYSE:WGO), Sogou Inc. (NYSE:SOGO), and LTC Properties Inc (NYSE:LTC). This group of stocks’ market values are similar to ZYME’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| INSP | 21 | 325421 | 2 |
| WGO | 23 | 230640 | 8 |
| SOGO | 11 | 13397 | 7 |
| LTC | 10 | 36725 | 0 |
| Average | 16.25 | 151546 | 4.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $152 million. That figure was $667 million in ZYME’s case. Winnebago Industries, Inc. (NYSE:WGO) is the most popular stock in this table. On the other hand LTC Properties Inc (NYSE:LTC) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Zymeworks Inc. (NYSE:ZYME) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th and still beat the market by 4.2 percentage points. Unfortunately ZYME wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ZYME were disappointed as the stock returned -20.4% during the three months of 2020 (through April 6th) 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 most of these stocks already outperformed the market in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
