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Hedge Funds Were Piling Into Zoetis Inc (ZTS) During The Pandemic Crash

Abigail Fisher
·6 mins read

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 821 13F filings submitted by hedge funds and prominent investors. These filings show these funds' portfolio positions as of March 31st, 2020. In this article we are going to take a look at smart money sentiment towards Zoetis Inc (NYSE:ZTS).

Is Zoetis Inc (NYSE:ZTS) going to take off soon? The smart money is getting more optimistic. The number of bullish hedge fund positions advanced by 12 lately. Our calculations also showed that ZTS isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). ZTS was in 60 hedge funds' portfolios at the end of the first quarter of 2020. There were 48 hedge funds in our database with ZTS positions at the end of the previous quarter. Video: 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 S&P 500 ETFs by more than 44 percentage points since March 2017 (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_746893" align="aligncenter" width="399"] Paul Marshall of Marshall Wace[/caption]

Paul Marshall Marshall Wace
Paul Marshall Marshall Wace

At Insider Monkey 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 checked out this European marijuana stock pitch. Also, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this analyst’s “corona catalyst plays“. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let's take a gander at the fresh hedge fund action surrounding Zoetis Inc (NYSE:ZTS).

How are hedge funds trading Zoetis Inc (NYSE:ZTS)?

At Q1's end, a total of 60 of the hedge funds tracked by Insider Monkey were long this stock, a change of 25% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ZTS over the last 18 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Zoetis Inc (NYSE:ZTS) was held by Cantillon Capital Management, which reported holding $344.1 million worth of stock at the end of September. It was followed by Marshall Wace LLP with a $201.3 million position. Other investors bullish on the company included Renaissance Technologies, Ako Capital, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Marlowe Partners allocated the biggest weight to Zoetis Inc (NYSE:ZTS), around 7.41% of its 13F portfolio. Thames Capital Management is also relatively very bullish on the stock, setting aside 6.36 percent of its 13F equity portfolio to ZTS.

As industrywide interest jumped, specific money managers have jumped into Zoetis Inc (NYSE:ZTS) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the largest position in Zoetis Inc (NYSE:ZTS). Arrowstreet Capital had $39.2 million invested in the company at the end of the quarter. Benjamin A. Smith's Laurion Capital Management also made a $12.3 million investment in the stock during the quarter. The following funds were also among the new ZTS investors: David Steinberg and Eric Udoff's Marlowe Partners, Ben Gambill's Tiger Eye Capital, and Michael Rockefeller and KarláKroeker's Woodline Partners.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Zoetis Inc (NYSE:ZTS) but similarly valued. These stocks are Canadian National Railway Company (NYSE:CNI), Booking Holdings Inc. (NASDAQ:BKNG), Biogen Inc. (NASDAQ:BIIB), and The Blackstone Group Inc. (NYSE:BX). This group of stocks' market valuations match ZTS's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CNI,26,1605797,-3 BKNG,90,4914673,16 BIIB,70,4497544,9 BX,49,1523046,2 Average,58.75,3135265,6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 58.75 hedge funds with bullish positions and the average amount invested in these stocks was $3135 million. That figure was $1776 million in ZTS's case. Booking Holdings Inc. (NASDAQ:BKNG) is the most popular stock in this table. On the other hand Canadian National Railway Company (NYSE:CNI) is the least popular one with only 26 bullish hedge fund positions. Zoetis Inc (NYSE:ZTS) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 7.9% in 2020 through May 22nd but beat the market by 15.6 percentage points. Unfortunately ZTS wasn't nearly as popular as these 10 stocks and hedge funds that were betting on ZTS were disappointed as the stock returned 10.7% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 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.

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