Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don't make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and a 20% drop in stock prices. Things completely reversed in 2019 and stock indices hit record highs. Recent hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Zovio Inc. (NASDAQ:ZVO) to find out whether it was one of their high conviction long-term ideas.
Is Zovio Inc. (NASDAQ:ZVO) a buy, sell, or hold? Prominent investors are taking a bullish view. The number of long hedge fund positions went up by 3 recently. Our calculations also showed that ZVO isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). ZVO was in 13 hedge funds' portfolios at the end of September. There were 10 hedge funds in our database with ZVO positions at the end of the previous quarter. Video: Click the image to 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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
[caption id="attachment_365194" align="aligncenter" width="450"] David E. Shaw of D.E. Shaw[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to take a glance at the fresh hedge fund action surrounding Zovio Inc. (NASDAQ:ZVO).
How have hedgies been trading Zovio Inc. (NASDAQ:ZVO)?
At Q3's end, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 30% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ZVO over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies holds the largest position in Zovio Inc. (NASDAQ:ZVO). Renaissance Technologies has a $3.4 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On Renaissance Technologies's heels is Cloverdale Capital Management, managed by C. Jonathan Gattman, which holds a $3.4 million position; the fund has 2.3% of its 13F portfolio invested in the stock. Other professional money managers that hold long positions contain Phil Frohlich's Prescott Group Capital Management, David E. Shaw's D E Shaw and Wilmot B. Harkey and Daniel Mack's Nantahala Capital Management. In terms of the portfolio weights assigned to each position Cloverdale Capital Management allocated the biggest weight to Zovio Inc. (NASDAQ:ZVO), around 2.32% of its 13F portfolio. 1060 Capital Management is also relatively very bullish on the stock, setting aside 0.87 percent of its 13F equity portfolio to ZVO.
Springbok Capital and 1060 Capital Management initiated the biggest new positions in this stock. However, their positions weren't very big as none of the these funds cracked into the top 5 holders of ZVO.
Let's now review hedge fund activity in other stocks similar to Zovio Inc. (NASDAQ:ZVO). We will take a look at Fellazo Inc. (NASDAQ:FLLC), Tecogen Inc. (NASDAQ:TGEN), CBM Bancorp, Inc. (NASDAQ:CBMB), and Performant Financial Corporation (NASDAQ:PFMT). This group of stocks' market valuations resemble ZVO's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FLLC,5,14615,5 TGEN,2,136,0 CBMB,4,2605,1 PFMT,5,13020,2 Average,4,7594,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 4 hedge funds with bullish positions and the average amount invested in these stocks was $8 million. That figure was $15 million in ZVO's case. Fellazo Inc. (NASDAQ:FLLC) is the most popular stock in this table. On the other hand Tecogen Inc. (NASDAQ:TGEN) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Zovio Inc. (NASDAQ:ZVO) 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. Unfortunately ZVO wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ZVO were disappointed as the stock returned 2.5% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.