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Hedge Funds Were Selling ZTO Express (Cayman) Inc. (ZTO) Before The Coronavirus

Asma UL Husna

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (read our latest 10 coronavirus predictions).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about ZTO Express (Cayman) Inc. (NYSE:ZTO) in this article.

ZTO Express (Cayman) Inc. (NYSE:ZTO) investors should pay attention to a decrease in enthusiasm from smart money of late. ZTO was in 14 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 20 hedge funds in our database with ZTO positions at the end of the previous quarter. Our calculations also showed that ZTO isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_221556" align="aligncenter" width="399"] Richard Driehaus of Driehaus Capital[/caption]

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind let's take a peek at the fresh hedge fund action encompassing ZTO Express (Cayman) Inc. (NYSE:ZTO).

How are hedge funds trading ZTO Express (Cayman) Inc. (NYSE:ZTO)?

At Q4's end, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -30% from one quarter earlier. By comparison, 13 hedge funds held shares or bullish call options in ZTO a year ago. With hedge funds' capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Among these funds, Platinum Asset Management held the most valuable stake in ZTO Express (Cayman) Inc. (NYSE:ZTO), which was worth $346.9 million at the end of the third quarter. On the second spot was Tairen Capital which amassed $63.8 million worth of shares. Driehaus Capital, AQR Capital Management, and Renaissance Technologies 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 Tairen Capital allocated the biggest weight to ZTO Express (Cayman) Inc. (NYSE:ZTO), around 9.82% of its 13F portfolio. Calixto Global Investors is also relatively very bullish on the stock, designating 8.35 percent of its 13F equity portfolio to ZTO.

Judging by the fact that ZTO Express (Cayman) Inc. (NYSE:ZTO) has witnessed falling interest from the smart money, it's easy to see that there exists a select few money managers who were dropping their entire stakes heading into Q4. Interestingly, Chase Coleman's Tiger Global Management LLC said goodbye to the biggest position of the "upper crust" of funds monitored by Insider Monkey, valued at close to $21.2 million in call options. Benjamin A. Smith's fund, Laurion Capital Management, also sold off its call options, about $2.1 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 6 funds heading into Q4.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as ZTO Express (Cayman) Inc. (NYSE:ZTO) but similarly valued. We will take a look at W.W. Grainger, Inc. (NYSE:GWW), International Paper Company (NYSE:IP), Yum China Holdings, Inc. (NYSE:YUMC), and CMS Energy Corporation (NYSE:CMS). This group of stocks' market caps are similar to ZTO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GWW,29,700506,4 IP,25,272873,-3 YUMC,29,699257,-5 CMS,30,526352,0 Average,28.25,549747,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $550 million. That figure was $498 million in ZTO's case. CMS Energy Corporation (NYSE:CMS) is the most popular stock in this table. On the other hand International Paper Company (NYSE:IP) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks ZTO Express (Cayman) Inc. (NYSE:ZTO) is even less popular than IP. Hedge funds clearly dropped the ball on ZTO as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. A small number of hedge funds were also right about betting on ZTO as the stock returned 7.6% during the same time period and outperformed the market by an even larger margin.

5 Most Popular Stocks Among Hedge Funds

Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.


Disclosure: None. This article was originally published at Insider Monkey.

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