The market has been volatile in the last few months as the Federal Reserve continued its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q2 and the beginning of Q3. In this article, we analyze what the smart money thinks of Zendesk Inc (NYSE:ZEN) and find out how it is affected by hedge funds' moves.
Is Zendesk Inc (NYSE:ZEN) the right pick for your portfolio? Money managers are in a pessimistic mood. The number of bullish hedge fund positions fell by 3 in recent months. Our calculations also showed that ZEN isn't among the 30 most popular stocks among hedge funds (view the video below). ZEN was in 50 hedge funds' portfolios at the end of June. There were 53 hedge funds in our database with ZEN holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
If you'd ask most traders, hedge funds are viewed as underperforming, outdated investment vehicles of the past. While there are greater than 8000 funds trading at present, We choose to focus on the crème de la crème of this club, around 750 funds. These hedge fund managers orchestrate the lion's share of the hedge fund industry's total capital, and by following their top equity investments, Insider Monkey has revealed various investment strategies that have historically defeated Mr. Market. Insider Monkey's flagship hedge fund strategy outrun the S&P 500 index by around 5 percentage points per annum since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .
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. We're going to take a peek at the key hedge fund action regarding Zendesk Inc (NYSE:ZEN).
What have hedge funds been doing with Zendesk Inc (NYSE:ZEN)?
Heading into the third quarter of 2019, a total of 50 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from one quarter earlier. On the other hand, there were a total of 41 hedge funds with a bullish position in ZEN a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
Among these funds, Alkeon Capital Management held the most valuable stake in Zendesk Inc (NYSE:ZEN), which was worth $268.3 million at the end of the second quarter. On the second spot was Tiger Global Management LLC which amassed $240.6 million worth of shares. Moreover, Whale Rock Capital Management, Polar Capital, and EMS Capital were also bullish on Zendesk Inc (NYSE:ZEN), allocating a large percentage of their portfolios to this stock.
Seeing as Zendesk Inc (NYSE:ZEN) has witnessed declining sentiment from the smart money, logic holds that there is a sect of funds who were dropping their entire stakes in the second quarter. It's worth mentioning that Andreas Halvorsen's Viking Global said goodbye to the biggest investment of the "upper crust" of funds tracked by Insider Monkey, valued at about $73.4 million in stock, and Ryan Frick and Oliver Evans's Dorsal Capital Management was right behind this move, as the fund dumped about $51 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 3 funds in the second quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Zendesk Inc (NYSE:ZEN) but similarly valued. These stocks are Torchmark Corporation (NYSE:TMK), Zscaler, Inc. (NASDAQ:ZS), Enel Americas S.A. (NYSE:ENIA), and Weibo Corp (NASDAQ:WB). All of these stocks' market caps match ZEN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TMK,19,808569,-2 ZS,25,325854,6 ENIA,11,204387,-3 WB,16,370152,3f Average,17.75,427241,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $427 million. That figure was $1843 million in ZEN's case. Zscaler, Inc. (NASDAQ:ZS) is the most popular stock in this table. On the other hand Enel Americas S.A. (NYSE:ENIA) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Zendesk Inc (NYSE:ZEN) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ZEN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ZEN were disappointed as the stock returned -18.1% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market in Q3.
Disclosure: None. This article was originally published at Insider Monkey.