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How Did Zimmer Biomet Holdings Inc (ZBH) Perform In Comparison to Hedge Fund Favorites in 2019?

Asma UL Husna

We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57% each. Hedge funds' top 3 stock picks returned 44.6% this year and beat the S&P 500 ETFs by nearly 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Zimmer Biomet Holdings Inc (NYSE:ZBH).

Is Zimmer Biomet Holdings Inc (NYSE:ZBH) the right pick for your portfolio? Money managers are buying. The number of long hedge fund bets improved by 2 in recent months. Our calculations also showed that ZBH 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).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_30594" align="aligncenter" width="473"] Barry Rosenstein of JANA Partners[/caption]

Barry Rosenstein JANA PARTNERS

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. Now we're going to analyze the recent hedge fund action encompassing Zimmer Biomet Holdings Inc (NYSE:ZBH).

Hedge fund activity in Zimmer Biomet Holdings Inc (NYSE:ZBH)

At the end of the third quarter, a total of 44 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ZBH over the last 17 quarters. With the smart money's sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

More specifically, Millennium Management was the largest shareholder of Zimmer Biomet Holdings Inc (NYSE:ZBH), with a stake worth $194 million reported as of the end of September. Trailing Millennium Management was Partner Fund Management, which amassed a stake valued at $135.6 million. Citadel Investment Group, JANA Partners, and Healthcor Management 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 Tavio Capital allocated the biggest weight to Zimmer Biomet Holdings Inc (NYSE:ZBH), around 20.64% of its 13F portfolio. Prosight Capital is also relatively very bullish on the stock, earmarking 9.75 percent of its 13F equity portfolio to ZBH.

As industrywide interest jumped, key money managers were leading the bulls' herd. Healthcor Management, managed by Arthur B Cohen and Joseph Healey, created the biggest position in Zimmer Biomet Holdings Inc (NYSE:ZBH). Healthcor Management had $99.3 million invested in the company at the end of the quarter. David Harding's Winton Capital Management also initiated a $12 million position during the quarter. The following funds were also among the new ZBH investors: Ira Unschuld's Brant Point Investment Management, Joseph Edelman's Perceptive Advisors, and Ilan Assouline's Circle Road Advisors.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Zimmer Biomet Holdings Inc (NYSE:ZBH) but similarly valued. We will take a look at Cintas Corporation (NASDAQ:CTAS), HP Inc. (NYSE:HPQ), PPG Industries, Inc. (NYSE:PPG), and Sirius XM Holdings Inc (NASDAQ:SIRI). This group of stocks' market valuations are similar to ZBH's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CTAS,37,931398,10 HPQ,38,2031394,6 PPG,27,421872,0 SIRI,33,1274312,4 Average,33.75,1164744,5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.75 hedge funds with bullish positions and the average amount invested in these stocks was $1165 million. That figure was $1474 million in ZBH's case. HP Inc. (NYSE:HPQ) is the most popular stock in this table. On the other hand PPG Industries, Inc. (NYSE:PPG) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Zimmer Biomet Holdings Inc (NYSE:ZBH) 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 ZBH as the stock returned 46.7% 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.

5 Most Popular Stocks Among Hedge Funds

Disclosure: None. This article was originally published at Insider Monkey.

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