We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Zoetis Inc (NYSE:ZTS).
Zoetis Inc (NYSE:ZTS) has seen an increase in support from the world’s most elite money managers recently. Zoetis Inc (NYSE:ZTS) was in 61 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic was previously 60. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ZTS isn’t among the 30 most popular stocks among hedge funds (click for Q4 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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 124 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
William Von Mueffling of Cantillon Capital Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now let’s review the latest hedge fund action encompassing Zoetis Inc (NYSE:ZTS).
Do Hedge Funds Think ZTS Is A Good Stock To Buy Now?
At the end of December, a total of 61 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ZTS over the last 22 quarters. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
Among these funds, Cantillon Capital Management held the most valuable stake in Zoetis Inc (NYSE:ZTS), which was worth $481.7 million at the end of the fourth quarter. On the second spot was Marshall Wace LLP which amassed $474.1 million worth of shares. Ako Capital, D E Shaw, and Intermede Investment Partners 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 Intermede Investment Partners allocated the biggest weight to Zoetis Inc (NYSE:ZTS), around 5.15% of its 13F portfolio. Bristol Gate Capital Partners is also relatively very bullish on the stock, earmarking 4.22 percent of its 13F equity portfolio to ZTS.
There weren’t any hedge funds initiating brand new positions in the stock during the fourth quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Zoetis Inc (NYSE:ZTS) but similarly valued. These stocks are Canadian National Railway Company (NYSE:CNI), Altria Group Inc (NYSE:MO), Fiserv, Inc. (NASDAQ:FISV), NIO Inc. (NYSE:NIO), Automatic Data Processing (NASDAQ:ADP), Cigna Corporation (NYSE:CI), and Snap Inc. (NYSE:SNAP). This group of stocks’ market caps match ZTS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CNI | 31 | 2188963 | 5 |
| MO | 37 | 1082661 | -10 |
| FISV | 94 | 5178126 | 4 |
| NIO | 34 | 2634013 | -1 |
| ADP | 48 | 3064769 | 6 |
| CI | 57 | 2578300 | -5 |
| SNAP | 63 | 4610841 | 12 |
| Average | 52 | 3048239 | 1.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 52 hedge funds with bullish positions and the average amount invested in these stocks was $3048 million. That figure was $2390 million in ZTS’s case. Fiserv, Inc. (NASDAQ:FISV) is the most popular stock in this table. On the other hand Canadian National Railway Company (NYSE:CNI) is the least popular one with only 31 bullish hedge fund positions. Zoetis Inc (NYSE:ZTS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ZTS is 61.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and beat the market again by 1.6 percentage points. Unfortunately ZTS wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ZTS were disappointed as the stock returned 4.9% since the end of December (through 4/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
Follow Zoetis Inc. (NYSE:ZTS)
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Disclosure: None. This article was originally published at Insider Monkey.
