We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 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 Zynga Inc (NASDAQ:ZNGA).
Zynga Inc (NASDAQ:ZNGA) has experienced a decrease in support from the world's most elite money managers lately. ZNGA was in 39 hedge funds' portfolios at the end of the third quarter of 2019. There were 48 hedge funds in our database with ZNGA holdings at the end of the previous quarter. Our calculations also showed that ZNGA isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_26340" align="aligncenter" width="594"] Ken Griffin of Citadel Investment Group[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's review the key hedge fund action regarding Zynga Inc (NASDAQ:ZNGA).
How have hedgies been trading Zynga Inc (NASDAQ:ZNGA)?
Heading into the fourth quarter of 2019, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from one quarter earlier. On the other hand, there were a total of 26 hedge funds with a bullish position in ZNGA a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Zynga Inc (NASDAQ:ZNGA) was held by Cadian Capital, which reported holding $165.8 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $153.9 million position. Other investors bullish on the company included Iridian Asset Management, Renaissance Technologies, and D E Shaw. In terms of the portfolio weights assigned to each position Greenvale Capital allocated the biggest weight to Zynga Inc (NASDAQ:ZNGA), around 14.37% of its portfolio. Tiger Legatus Capital is also relatively very bullish on the stock, designating 13.26 percent of its 13F equity portfolio to ZNGA.
Since Zynga Inc (NASDAQ:ZNGA) has experienced falling interest from the entirety of the hedge funds we track, we can see that there is a sect of hedge funds who sold off their positions entirely heading into Q4. Interestingly, Seth Wunder's Black-and-White Capital dropped the biggest position of all the hedgies monitored by Insider Monkey, comprising an estimated $49 million in stock. James Parsons's fund, Junto Capital Management, also dropped its stock, about $31.4 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 9 funds heading into Q4.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Zynga Inc (NASDAQ:ZNGA) but similarly valued. These stocks are Jabil Inc. (NYSE:JBL), BWX Technologies Inc (NYSE:BWXT), Ingredion Inc (NYSE:INGR), and Cloudflare, Inc. (NYSE:NET). This group of stocks' market values resemble ZNGA's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position JBL,30,437935,4 BWXT,21,58972,2 INGR,27,343195,6 NET,33,144754,33 Average,27.75,246214,11.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.75 hedge funds with bullish positions and the average amount invested in these stocks was $246 million. That figure was $1138 million in ZNGA's case. Cloudflare, Inc. (NYSE:NET) is the most popular stock in this table. On the other hand BWX Technologies Inc (NYSE:BWXT) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Zynga Inc (NASDAQ:ZNGA) 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. Hedge funds were also right about betting on ZNGA, though not to the same extent, as the stock returned 7% during the fourth quarter (through the end of November) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.