Reputable billionaire investors such as Jim Simons, Cliff Asness and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won't accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.
Is Zscaler, Inc. (NASDAQ:ZS) ready to rally soon? Hedge funds are buying. The number of bullish hedge fund positions went up by 6 lately. Our calculations also showed that ZS isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's view the new hedge fund action regarding Zscaler, Inc. (NASDAQ:ZS).
Hedge fund activity in Zscaler, Inc. (NASDAQ:ZS)
Heading into the third quarter of 2019, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 32% from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in ZS a year ago. With hedge funds' sentiment swirling, there exists a few notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
Among these funds, Two Sigma Advisors held the most valuable stake in Zscaler, Inc. (NASDAQ:ZS), which was worth $67.8 million at the end of the second quarter. On the second spot was Renaissance Technologies which amassed $54.6 million worth of shares. Moreover, D E Shaw, Alkeon Capital Management, and PEAK6 Capital Management were also bullish on Zscaler, Inc. (NASDAQ:ZS), allocating a large percentage of their portfolios to this stock.
Now, specific money managers have jumped into Zscaler, Inc. (NASDAQ:ZS) headfirst. Millennium Management, managed by Israel Englander, established the biggest position in Zscaler, Inc. (NASDAQ:ZS). Millennium Management had $19.9 million invested in the company at the end of the quarter. Josh Goldberg's G2 Investment Partners Management also made a $3.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Nehal Chopra's Ratan Capital Group, Doug Gordon, Jon Hilsabeck and Don Jabro's Shellback Capital, and Phil Frohlich's Prescott Group Capital Management.
Let's now review hedge fund activity in other stocks similar to Zscaler, Inc. (NASDAQ:ZS). These stocks are Enel Americas S.A. (NYSE:ENIA), Weibo Corp (NASDAQ:WB), Zillow Group Inc (NASDAQ:Z), and J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT). This group of stocks' market values match ZS's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ENIA,11,204387,-3 WB,16,370152,3 Z,51,1355990,18 JBHT,20,229670,-7 Average,24.5,540050,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $540 million. That figure was $326 million in ZS's case. Zillow Group Inc (NASDAQ:Z) is the most popular stock in this table. On the other hand Enel Americas S.A. (NYSE:ENIA) is the least popular one with only 11 bullish hedge fund positions. Zscaler, Inc. (NASDAQ:ZS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ZS wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ZS were disappointed as the stock returned -38.3% during the third 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.