The market has been volatile as the Federal Reserve continues its rate hikes to normalize the interest rates. Small-cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by about 4 percentage points through November 16th. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, and the funds’ movements is one of the reasons why the major indexes have retraced. In this article, we analyze what the smart money thinks of Zoetis Inc (NYSE:ZTS) and find out how it is affected by hedge funds’ moves.
Zoetis Inc (NYSE:ZTS) was in 41 hedge funds’ portfolios at the end of the third quarter of 2018. ZTS investors should pay attention to an increase in support from the world’s most elite money managers of late. There were 39 hedge funds in our database with ZTS holdings at the end of the previous quarter. Our calculations also showed that ZTS isn’t among the 30 most popular stocks among hedge funds.
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 the 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 market by 18 percentage points since May 2014 through December 3, 2018 (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.
We’re going to go over the fresh hedge fund action surrounding Zoetis Inc (NYSE:ZTS).
How are hedge funds trading Zoetis Inc (NYSE:ZTS)?
Heading into the fourth quarter of 2018, a total of 41 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards ZTS over the last 13 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
More specifically, Cantillon Capital Management was the largest shareholder of Zoetis Inc (NYSE:ZTS), with a stake worth $345.7 million reported as of the end of September. Trailing Cantillon Capital Management was Cantillon Capital Management, which amassed a stake valued at $345.7 million. Marshall Wace LLP, D E Shaw, and Renaissance Technologies were also very fond of the stock, giving the stock large weights in their portfolios.
With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Impax Asset Management, managed by Ian Simm, created the most outsized position in Zoetis Inc (NYSE:ZTS). Impax Asset Management had $7.6 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $4.6 million investment in the stock during the quarter. The following funds were also among the new ZTS investors: Barry Rosenstein’s JANA Partners, Peter Algert and Kevin Coldiron’s Algert Coldiron Investors, and Ira Unschuld’s Brant Point Investment Management.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Zoetis Inc (NYSE:ZTS) but similarly valued. These stocks are Regeneron Pharmaceuticals Inc (NASDAQ:REGN), Intercontinental Exchange Inc (NYSE:ICE), Prologis Inc (NYSE:PLD), and The Sherwin-Williams Company (NYSE:SHW). This group of stocks’ market caps matches ZTS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| REGN | 30 | 1033013 | 2 |
| ICE | 36 | 2850130 | 3 |
| PLD | 25 | 666044 | -3 |
| SHW | 38 | 1412679 | 3 |
| Average | 32.25 | 1490 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.25 hedge funds with bullish positions and the average amount invested in these stocks was $1490 million. That figure was $2241 million in ZTS’s case. The Sherwin-Williams Company (NYSE:SHW) is the most popular stock in this table. On the other hand, Prologis Inc (NYSE:PLD) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Zoetis Inc (NYSE:ZTS) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.
