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 (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the fourth quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4 years and analyze what the smart money thinks of Zillow Group Inc (NASDAQ:Z) based on that data.
Zillow Group Inc (NASDAQ:Z) has seen a decrease in support from the world’s most elite money managers lately. Our calculations also showed that Z 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.
Ryan Frick of Dorsal Capital
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. With all of this in mind let’s take a look at the fresh hedge fund action regarding Zillow Group Inc (NASDAQ:Z).
How have hedgies been trading Zillow Group Inc (NASDAQ:Z)?
Heading into the first quarter of 2020, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from the previous quarter. The graph below displays the number of hedge funds with bullish position in Z over the last 18 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
More specifically, SRS Investment Management was the largest shareholder of Zillow Group Inc (NASDAQ:Z), with a stake worth $446.6 million reported as of the end of September. Trailing SRS Investment Management was Eminence Capital, which amassed a stake valued at $148.3 million. Slate Path Capital, Ancient Art (Teton Capital), and Matrix Capital Management 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 Thrive Capital allocated the biggest weight to Zillow Group Inc (NASDAQ:Z), around 29.67% of its 13F portfolio. Ancient Art (Teton Capital) is also relatively very bullish on the stock, earmarking 17.4 percent of its 13F equity portfolio to Z.
Due to the fact that Zillow Group Inc (NASDAQ:Z) has witnessed declining sentiment from the aggregate hedge fund industry, logic holds that there was a specific group of hedge funds that slashed their full holdings in the third quarter. It’s worth mentioning that William C. Martin’s Raging Capital Management sold off the biggest position of the 750 funds tracked by Insider Monkey, comprising an estimated $16.6 million in stock. Joe Milano’s fund, Greenhouse Funds, also cut its stock, about $15.5 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 5 funds in the third quarter.
Let’s check out hedge fund activity in other stocks similar to Zillow Group Inc (NASDAQ:Z). We will take a look at Targa Resources Corp (NYSE:TRGP), Teck Resources Ltd (NYSE:TECK), Vipshop Holdings Limited (NYSE:VIPS), and Ceridian HCM Holding Inc. (NYSE:CDAY). This group of stocks’ market values match Z’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TRGP | 27 | 346879 | 9 |
| TECK | 30 | 687927 | 10 |
| VIPS | 27 | 403120 | 3 |
| CDAY | 31 | 1544063 | 1 |
| Average | 28.75 | 745497 | 5.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $745 million. That figure was $1683 million in Z’s case. Ceridian HCM Holding Inc. (NYSE:CDAY) is the most popular stock in this table. On the other hand Targa Resources Corp (NYSE:TRGP) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Zillow Group Inc (NASDAQ:Z) 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 22.3% in 2020 through March 16th and still beat the market by 3.2 percentage points. Unfortunately Z wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on Z were disappointed as the stock returned -37.6% during the first two and a half months of 2020 (through March 16th) 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 Q1.
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.
