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.
Zillow Group Inc (NASDAQ:Z) was in 23 hedge funds' portfolios at the end of the fourth quarter of 2018. Z investors should be aware of an increase in hedge fund sentiment in recent months. There were 22 hedge funds in our database with Z holdings at the end of the previous quarter. Our calculations also showed that Z isn't among the 30 most popular stocks among hedge funds.
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 market by 32 percentage points since May 2014 through March 12, 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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's review the recent hedge fund action surrounding Zillow Group Inc (NASDAQ:Z).
What does the smart money think about Zillow Group Inc (NASDAQ:Z)?
At the end of the fourth quarter, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards Z over the last 14 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Viking Global, managed by Andreas Halvorsen, holds the largest position in Zillow Group Inc (NASDAQ:Z). Viking Global has a $146.9 million position in the stock, comprising 0.8% of its 13F portfolio. The second largest stake is held by Karthik Sarma of SRS Investment Management, with a $89 million position; 2.8% of its 13F portfolio is allocated to the company. Remaining peers that hold long positions comprise Christopher R. Hansen's Valiant Capital, Quincy Lee's Ancient Art (Teton Capital) and Josh Resnick's Jericho Capital Asset Management.
Now, specific money managers were breaking ground themselves. Viking Global, managed by Andreas Halvorsen, established the largest position in Zillow Group Inc (NASDAQ:Z). Viking Global had $146.9 million invested in the company at the end of the quarter. Christopher R. Hansen's Valiant Capital also initiated a $79 million position during the quarter. The other funds with brand new Z positions are Josh Resnick's Jericho Capital Asset Management, George Soros's Soros Fund Management, and Jonathan Berger's Birch Grove Capital.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Zillow Group Inc (NASDAQ:Z) but similarly valued. These stocks are Booz Allen Hamilton Holding Corporation (NYSE:BAH), Gerdau SA (NYSE:GGB), The Madison Square Garden Company (NYSE:MSG), and Kilroy Realty Corp (NYSE:KRC). This group of stocks' market values resemble Z's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BAH,26,215892,4 GGB,12,143342,-3 MSG,46,1733627,6 KRC,13,178217,1 Average,24.25,567770,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $568 million. That figure was $567 million in Z's case. The Madison Square Garden Company (NYSE:MSG) is the most popular stock in this table. On the other hand Gerdau SA (NYSE:GGB) is the least popular one with only 12 bullish hedge fund positions. Zillow Group Inc (NASDAQ:Z) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Hedge funds were also right about betting on Z, though not to the same extent, as the stock returned 19% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.