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Were Hedge Funds Right About Betting On Zimmer Biomet Holdings Inc (ZBH)?

Nina Todic

As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the second quarter. We get to see hedge funds' thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Zimmer Biomet Holdings Inc (NYSE:ZBH).

Zimmer Biomet Holdings Inc (NYSE:ZBH) shareholders have witnessed an increase in support from the world's most elite money managers lately. Our calculations also showed that ZBH 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 40 percentage points since May 2014 through May 30, 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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Barry Rosenstein JANA PARTNERS

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a look at the latest hedge fund action encompassing Zimmer Biomet Holdings Inc (NYSE:ZBH).

What have hedge funds been doing with Zimmer Biomet Holdings Inc (NYSE:ZBH)?

At Q2's end, a total of 42 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 20% from the previous quarter. By comparison, 35 hedge funds held shares or bullish call options in ZBH a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with ZBH Positions

More specifically, JANA Partners was the largest shareholder of Zimmer Biomet Holdings Inc (NYSE:ZBH), with a stake worth $220.6 million reported as of the end of March. Trailing JANA Partners was Partner Fund Management, which amassed a stake valued at $137.2 million. Point72 Asset Management, Suvretta Capital Management, and D E Shaw were also very fond of the stock, giving the stock large weights in their portfolios.

With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. Renaissance Technologies  created the biggest position in Zimmer Biomet Holdings Inc (NYSE:ZBH). Renaissance Technologies had $42.8 million invested in the company at the end of the quarter. Brian Ashford-Russell and Tim Woolley's Polar Capital also initiated a $22.2 million position during the quarter. The other funds with brand new ZBH positions are Matthew Tewksbury's Stevens Capital Management, Justin John Ferayorni's Tamarack Capital Management, and Lee Ainslie's Maverick Capital.

Let's also examine hedge fund activity in other stocks similar to Zimmer Biomet Holdings Inc (NYSE:ZBH). These stocks are Agilent Technologies Inc. (NYSE:A), IDEXX Laboratories, Inc. (NASDAQ:IDXX), DTE Energy Company (NYSE:DTE), and Lululemon Athletica inc. (NASDAQ:LULU). This group of stocks' market caps are closest to ZBH's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position A,39,1826200,-2 IDXX,37,711119,8 DTE,28,664329,3 LULU,49,1803118,7 Average,38.25,1251192,4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.25 hedge funds with bullish positions and the average amount invested in these stocks was $1251 million. That figure was $1425 million in ZBH's case. Lululemon Athletica inc. (NASDAQ:LULU) is the most popular stock in this table. On the other hand DTE Energy Company (NYSE:DTE) is the least popular one with only 28 bullish hedge fund positions. Zimmer Biomet Holdings Inc (NYSE:ZBH) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks (see the video below) among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on ZBH as the stock returned 16.8% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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