Is Zymeworks Inc. (NYSE:ZYME) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Zymeworks Inc. (NYSE:ZYME) shareholders have witnessed an increase in support from the world's most elite money managers recently. ZYME was in 16 hedge funds' portfolios at the end of September. There were 14 hedge funds in our database with ZYME positions at the end of the previous quarter. Our calculations also showed that ZYME 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.
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_338175" align="aligncenter" width="500"] Felix Baker of Baker Bros.[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds' buy/sell signals. Let's check out the key hedge fund action encompassing Zymeworks Inc. (NYSE:ZYME).
How have hedgies been trading Zymeworks Inc. (NYSE:ZYME)?
Heading into the fourth quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from the previous quarter. On the other hand, there were a total of 13 hedge funds with a bullish position in ZYME a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Great Point Partners held the most valuable stake in Zymeworks Inc. (NYSE:ZYME), which was worth $61.2 million at the end of the third quarter. On the second spot was Perceptive Advisors which amassed $59.2 million worth of shares. Farallon Capital, Baker Bros. Advisors, and Vivo Capital 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 Great Point Partners allocated the biggest weight to Zymeworks Inc. (NYSE:ZYME), around 5.62% of its 13F portfolio. Vivo Capital is also relatively very bullish on the stock, designating 4.64 percent of its 13F equity portfolio to ZYME.
There weren't any hedge funds initiating brand new positions in the stock during the third quarter.
Let's go over hedge fund activity in other stocks similar to Zymeworks Inc. (NYSE:ZYME). These stocks are Sculptor Capital Management, Inc. (NYSE:SCU), Ferro Corporation (NYSE:FOE), Mr. Cooper Group Inc. (NASDAQ:COOP), and ACCO Brands Corporation (NYSE:ACCO). This group of stocks' market valuations are closest to ZYME's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SCU,11,65813,1 FOE,16,131293,2 COOP,24,285179,1 ACCO,19,54847,3 Average,17.5,134283,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $134 million. That figure was $348 million in ZYME's case. Mr. Cooper Group Inc. (NASDAQ:COOP) is the most popular stock in this table. On the other hand Sculptor Capital Management, Inc. (NYSE:SCU) is the least popular one with only 11 bullish hedge fund positions. Zymeworks Inc. (NYSE:ZYME) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on ZYME as the stock returned 75.8% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.