Should You Avoid ZIOPHARM Oncology Inc. (ZIOP)?

We have been waiting for this for a year and finally the third quarter ended up showing a nice bump in the performance of small-cap stocks. Both the S&P 500 and Russell 2000 were up since the end of the second quarter, but small-cap stocks outperformed the large-cap stocks by double digits. This is important for hedge funds, which are big supporters of small-cap stocks, because their investors started pulling some of their capital out due to poor recent performance. It is very likely that equity hedge funds will deliver better risk adjusted returns in the second half of this year. In this article we are going to look at how this recent market trend affected the sentiment of hedge funds towards ZIOPHARM Oncology Inc. (NASDAQ:ZIOP), and what that likely means for the prospects of the company and its stock.

ZIOPHARM Oncology Inc. (NASDAQ:ZIOP) investors should pay attention to a decrease in enthusiasm from smart money in recent months. ZIOP was in 7 hedge funds’ portfolios at the end of September. There were 11 hedge funds in our database with ZIOP holdings at the end of the previous quarter. 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 PBF Logistics LP (NYSE:PBFX), General Cable Corporation (NYSE:BGC), and Chatham Lodging Trust (NYSE:CLDT) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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Keeping this in mind, let’s review the latest action regarding ZIOPHARM Oncology Inc. (NASDAQ:ZIOP).

How have hedgies been trading ZIOPHARM Oncology Inc. (NASDAQ:ZIOP)?

Heading into the fourth quarter of 2016, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a drop of 36% from one quarter earlier. On the other hand, there were a total of 12 hedge funds with a bullish position in ZIOP at the beginning of this year. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, MSDC Management, led by Marc Lisker, Glenn Fuhrman and John Phelan, holds the number one position in ZIOPHARM Oncology Inc. (NASDAQ:ZIOP). According to regulatory filings, the fund has a $19.2 million position in the stock, comprising 1.5% of its 13F portfolio. The second largest stake is held by Renaissance Technologies, one of the largest hedge funds in the world, which oversees a $1.8 million position; less than 0.1% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that hold long positions comprise Ken Griffin’s Citadel Investment Group and Daniel S. Och’s OZ Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Judging by the fact that ZIOPHARM Oncology Inc. (NASDAQ:ZIOP) has encountered bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there exists a select few fund managers that decided to sell off their full holdings last quarter. Interestingly, Glenn Russell Dubin’s Highbridge Capital Management got rid of the largest investment of all the hedgies followed by Insider Monkey, valued at about $1 million in stock. Ken Griffin’s fund, Citadel Investment Group, also sold off its call options, about $0.3 million worth of.

Let’s also examine hedge fund activity in other stocks similar to ZIOPHARM Oncology Inc. (NASDAQ:ZIOP). We will take a look at PBF Logistics LP (NYSE:PBFX), General Cable Corporation (NYSE:BGC), Chatham Lodging Trust (NYSE:CLDT), and WL Ross Holding Corp (NASDAQ:NXEO). All of these stocks’ market caps resemble ZIOP’s market cap.

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $97 million. That figure was $22 million in ZIOP’s case. WL Ross Holding Corp (NASDAQ:NXEO) is the most popular stock in this table. On the other hand PBF Logistics LP (NYSE:PBFX) is the least popular one with only 4 bullish hedge fund positions. ZIOPHARM Oncology Inc. (NASDAQ:ZIOP) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard NXEO might be a better candidate to consider taking a long position in.

Disclosure: none.