Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients' money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds. In this article we are going to take a look at smart money sentiment towards Zayo Group Holdings Inc (NYSE:ZAYO).
Zayo Group Holdings Inc (NYSE:ZAYO) investors should pay attention to a decrease in activity from the world's largest hedge funds in recent months. ZAYO was in 50 hedge funds' portfolios at the end of September. There were 59 hedge funds in our database with ZAYO positions at the end of the previous quarter. Our calculations also showed that ZAYO isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_258236" align="alignnone" width="600"]
Ken Griffin of Citadel Investment Group[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. With all of this in mind let's take a peek at the latest hedge fund action regarding Zayo Group Holdings Inc (NYSE:ZAYO).
What have hedge funds been doing with Zayo Group Holdings Inc (NYSE:ZAYO)?
Heading into the fourth quarter of 2019, a total of 50 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from one quarter earlier. By comparison, 55 hedge funds held shares or bullish call options in ZAYO a year ago. With hedgies' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Citadel Investment Group, managed by Ken Griffin, holds the number one position in Zayo Group Holdings Inc (NYSE:ZAYO). Citadel Investment Group has a $301.9 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Pentwater Capital Management, managed by Matthew Halbower, which holds a $286.3 million position; 4.5% of its 13F portfolio is allocated to the company. Other peers with similar optimism include Farallon Capital, Carl Tiedemann and Michael Tiedemann's TIG Advisors and Renaissance Technologies. In terms of the portfolio weights assigned to each position Twin Capital Management allocated the biggest weight to Zayo Group Holdings Inc (NYSE:ZAYO), around 12.89% of its 13F portfolio. TIG Advisors is also relatively very bullish on the stock, dishing out 7.53 percent of its 13F equity portfolio to ZAYO.
Judging by the fact that Zayo Group Holdings Inc (NYSE:ZAYO) has experienced falling interest from the smart money, it's safe to say that there were a few money managers that decided to sell off their entire stakes heading into Q4. At the top of the heap, Steve Cohen's Point72 Asset Management said goodbye to the biggest investment of all the hedgies tracked by Insider Monkey, comprising about $54.1 million in stock, and Stuart J. Zimmer's Zimmer Partners was right behind this move, as the fund sold off about $43.6 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 9 funds heading into Q4.
Let's now take a look at hedge fund activity in other stocks similar to Zayo Group Holdings Inc (NYSE:ZAYO). These stocks are Alaska Air Group, Inc. (NYSE:ALK), Pilgrim's Pride Corporation (NASDAQ:PPC), ICON Public Limited Company (NASDAQ:ICLR), and Euronet Worldwide, Inc. (NASDAQ:EEFT). All of these stocks' market caps are closest to ZAYO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALK,31,486037,9 PPC,24,264319,5 ICLR,20,613069,1 EEFT,35,322755,2 Average,27.5,421545,4.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $422 million. That figure was $1997 million in ZAYO's case. Euronet Worldwide, Inc. (NASDAQ:EEFT) is the most popular stock in this table. On the other hand ICON Public Limited Company (NASDAQ:ICLR) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Zayo Group Holdings Inc (NYSE:ZAYO) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on ZAYO as the stock returned 51.2% so far in 2019 (through 12/23) 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.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.