Is Zillow Group Inc (Z) Going to Burn These Hedge Funds?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Zillow Group Inc (NASDAQ:Z).

Hedge fund interest in Zillow Group Inc (NASDAQ:Z) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Clarivate Analytics Plc (NYSE:CCC), The Western Union Company (NYSE:WU), and Monolithic Power Systems, Inc. (NASDAQ:MPWR) to gather more data points. Our calculations also showed that Z isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 51 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ryan Frick of Dorsal Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a gander at the latest hedge fund action encompassing Zillow Group Inc (NASDAQ:Z).

Hedge fund activity in Zillow Group Inc (NASDAQ:Z)

At Q1’s end, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in Z over the last 18 quarters. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

Among these funds, SRS Investment Management held the most valuable stake in Zillow Group Inc (NASDAQ:Z), which was worth $350.2 million at the end of the third quarter. On the second spot was Eminence Capital which amassed $158.3 million worth of shares. Valiant Capital, Dorsal Capital Management, 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 41.85% of its 13F portfolio. Valiant Capital is also relatively very bullish on the stock, earmarking 13.95 percent of its 13F equity portfolio to Z.

Due to the fact that Zillow Group Inc (NASDAQ:Z) has witnessed a decline in interest from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of funds who were dropping their full holdings by the end of the third quarter. It’s worth mentioning that Josh Resnick’s Jericho Capital Asset Management said goodbye to the biggest investment of the “upper crust” of funds followed by Insider Monkey, comprising close to $30.7 million in stock. Gilchrist Berg’s fund, Water Street Capital, also cut its stock, about $14.8 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over 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 Clarivate Analytics Plc (NYSE:CCC), The Western Union Company (NYSE:WU), Monolithic Power Systems, Inc. (NASDAQ:MPWR), and Peloton Interactive, Inc. (NASDAQ:PTON). This group of stocks’ market caps are similar to Z’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.25 hedge funds with bullish positions and the average amount invested in these stocks was $574 million. That figure was $1369 million in Z’s case. Peloton Interactive, Inc. (NASDAQ:PTON) is the most popular stock in this table. On the other hand Monolithic Power Systems, Inc. (NASDAQ:MPWR) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks Zillow Group Inc (NASDAQ:Z) is more popular among hedge funds. 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 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on Z as the stock returned 61% so far in Q2 (through the end of May) 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.