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Here’s Why Baron Funds Disposed its Zymergen (ZY) Shares

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Baron Funds, an asset management firm, published its “Baron Health Care Fund” third quarter 2021 investor letter – a copy of which can be downloaded here. A return of 1.18% was delivered by the fund’s institutional shares for the third quarter of 2021, outperforming both its S&P 500 and Russell 3000 Health Care benchmarks that delivered 0.58% and 0.17% returns respectively for the same period. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.

Baron Funds, in its Q3 2021 investor letter, mentioned Zymergen Inc. (NASDAQ: ZY) and discussed its stance on the firm. Zymergen Inc. is an Emeryville, California-based science & material innovation with a $1.1 billion market capitalization. ZY delivered a -0.45% return for the past month and it closed at $11.04 per share on November 5, 2021.

Here is what Baron Funds has to say about Zymergen Inc. in its Q3 2021 investor letter:

"Zymergen Inc. is a company dedicated to biofacturing, or harnessing bacteria to manufacture materials. Zymergen was a detractor following an unexpected update announcing both a major delay in the launch of lead product Hyaline and the removal of CEO Josh Hoffman, who was replaced by company chairman and former Illumina CEO Jay Flatley. We exited our position given material impacts to the business."

Photo by National Cancer Institute on Unsplash

Based on our calculations, Zymergen Inc. (NASDAQ: ZY) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. ZY was in 15 hedge fund portfolios at the end of the first half of 2021. Zymergen Inc. (NASDAQ: ZY) delivered a -10.46% return in the past 3 months.

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’ 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 115 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.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, billionaire John Paulson is loading up on the miners, so we are checking out stock pitches like this mining stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage.

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