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Hedge Funds Are Betting On Zhihu Inc. (ZH)

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A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended March 31st, so let’s proceed with the discussion of the hedge fund sentiment on Zhihu Inc. (NYSE:ZH).

Is Zhihu Inc. (NYSE:ZH) worth your attention right now? Investors who are in the know were in an optimistic mood. The number of bullish hedge fund bets advanced by 23 recently. Zhihu Inc. (NYSE:ZH) was in 23 hedge funds' portfolios at the end of the first quarter of 2021. Our calculations also showed that ZH isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

To the average investor there are many methods market participants employ to value stocks. A duo of the less known methods are hedge fund and insider trading moves. We have shown that, historically, those who follow the best picks of the elite investment managers can outclass their index-focused peers by a significant amount (see the details here). Also, our monthly newsletter's portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

Millennium Management, Catapult Capital Management
Millennium Management, Catapult Capital Management

Israel Englander of Millennium Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery 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. Keeping this in mind let's view the recent hedge fund action surrounding Zhihu Inc. (NYSE:ZH).

Do Hedge Funds Think ZH Is A Good Stock To Buy Now?

At first quarter's end, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 23 from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ZH over the last 23 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Sylebra Capital Management was the largest shareholder of Zhihu Inc. (NYSE:ZH), with a stake worth $19.5 million reported as of the end of March. Trailing Sylebra Capital Management was Luminus Management, which amassed a stake valued at $18.4 million. SRS Investment Management, Jericho Capital Asset Management, and Millennium 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 0 allocated the biggest weight to Zhihu Inc. (NYSE:ZH), around 3.54% of its 13F portfolio. 0 is also relatively very bullish on the stock, setting aside 0.58 percent of its 13F equity portfolio to ZH.

As industrywide interest jumped, some big names were breaking ground themselves. Sylebra Capital Management, managed by Daniel Patrick Gibson, assembled the most outsized position in Zhihu Inc. (NYSE:ZH). Sylebra Capital Management had $19.5 million invested in the company at the end of the quarter. Jonathan Barrett and Paul Segal's Luminus Management also made a $18.4 million investment in the stock during the quarter. The following funds were also among the new ZH investors: Karthik Sarma's SRS Investment Management, Josh Resnick's Jericho Capital Asset Management, and Israel Englander's Millennium Management.

Let's check out hedge fund activity in other stocks similar to Zhihu Inc. (NYSE:ZH). We will take a look at Element Solutions Inc. (NYSE:ESI), DCP Midstream LP (NYSE:DCP), Simpson Manufacturing Co, Inc. (NYSE:SSD), Semtech Corporation (NASDAQ:SMTC), Open Lending Corporation (NASDAQ:LPRO), Sonos, Inc. (NASDAQ:SONO), and Qurate Retail, Inc. (NASDAQ:QRTEA). This group of stocks' market valuations are closest to ZH's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ESI,33,624419,4 DCP,4,20645,1 SSD,25,239346,0 SMTC,21,209600,4 LPRO,33,511506,-1 SONO,46,763124,3 QRTEA,31,776294,-5 Average,27.6,449276,0.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.6 hedge funds with bullish positions and the average amount invested in these stocks was $449 million. That figure was $94 million in ZH's case. Sonos, Inc. (NASDAQ:SONO) is the most popular stock in this table. On the other hand DCP Midstream LP (NYSE:DCP) is the least popular one with only 4 bullish hedge fund positions. Zhihu Inc. (NYSE:ZH) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ZH is 46.2. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and still beat the market by 7.7 percentage points. A small number of hedge funds were also right about betting on ZH as the stock returned 36.5% since the end of the first quarter (through 7/16) and outperformed the market by an even larger margin.

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