Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Total Return Index ETFs returned 27.5% through the end of November. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Zogenix, Inc. (NASDAQ:ZGNX).
Zogenix, Inc. (NASDAQ:ZGNX) has seen an increase in support from the world’s most elite money managers of late. Our calculations also showed that ZGNX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
To the average investor there are tons of gauges shareholders employ to analyze publicly traded companies. Some of the less utilized gauges are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the top picks of the top money managers can outpace the broader indices by a healthy margin (see the details here).
Peter Kolchinsky of RA Capital Management
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s review the fresh hedge fund action regarding Zogenix, Inc. (NASDAQ:ZGNX).
Hedge fund activity in Zogenix, Inc. (NASDAQ:ZGNX)
Heading into the fourth quarter of 2019, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 21% from one quarter earlier. By comparison, 37 hedge funds held shares or bullish call options in ZGNX 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.
More specifically, Cadian Capital was the largest shareholder of Zogenix, Inc. (NASDAQ:ZGNX), with a stake worth $139.1 million reported as of the end of September. Trailing Cadian Capital was Perceptive Advisors, which amassed a stake valued at $130.7 million. RA Capital Management, Great Point Partners, and venBio Select Advisor 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 Eversept Partners allocated the biggest weight to Zogenix, Inc. (NASDAQ:ZGNX), around 8.05% of its portfolio. Great Point Partners is also relatively very bullish on the stock, setting aside 7.36 percent of its 13F equity portfolio to ZGNX.
As one would reasonably expect, key hedge funds were breaking ground themselves. Millennium Management, managed by Israel Englander, created the most valuable call position in Zogenix, Inc. (NASDAQ:ZGNX). Millennium Management had $19.2 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $13.3 million position during the quarter. The following funds were also among the new ZGNX investors: Jeffrey Jay and David Kroin’s Great Point Partners, Arthur B Cohen and Joseph Healey’s Healthcor Management, and Dmitry Balyasny’s Balyasny Asset Management.
Let’s also examine hedge fund activity in other stocks similar to Zogenix, Inc. (NASDAQ:ZGNX). These stocks are NGL Energy Partners LP (NYSE:NGL), LexinFintech Holdings Ltd. (NASDAQ:LX), Heartland Express, Inc. (NASDAQ:HTLD), and Vector Group Ltd (NYSE:VGR). All of these stocks’ market caps match ZGNX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NGL | 4 | 38721 | 0 |
| LX | 15 | 75258 | 0 |
| HTLD | 17 | 46403 | 4 |
| VGR | 17 | 170355 | -1 |
| Average | 13.25 | 82684 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $83 million. That figure was $834 million in ZGNX’s case. Heartland Express, Inc. (NASDAQ:HTLD) is the most popular stock in this table. On the other hand NGL Energy Partners LP (NYSE:NGL) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Zogenix, Inc. (NASDAQ:ZGNX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on ZGNX as the stock returned 19.3% during the first two months of Q4 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.
Disclosure: None. This article was originally published at Insider Monkey.
