At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Zimmer Biomet Holdings Inc (NYSE:ZBH) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Is Zimmer Biomet Holdings Inc (NYSE:ZBH) worth your attention right now? Investors who are in the know were buying. The number of long hedge fund positions improved by 11 in recent months. Zimmer Biomet Holdings Inc (NYSE:ZBH) was in 62 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 64. Our calculations also showed that ZBH isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 51 hedge funds in our database with ZBH positions at the end of the first quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.
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 56 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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
John Rogers of Ariel Investments
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now let's take a look at the fresh hedge fund action regarding Zimmer Biomet Holdings Inc (NYSE:ZBH).
Hedge fund activity in Zimmer Biomet Holdings Inc (NYSE:ZBH)
At the end of June, a total of 62 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 22% from the previous quarter. On the other hand, there were a total of 42 hedge funds with a bullish position in ZBH a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Citadel Investment Group held the most valuable stake in Zimmer Biomet Holdings Inc (NYSE:ZBH), which was worth $100.7 million at the end of the third quarter. On the second spot was Millennium Management which amassed $97.9 million worth of shares. Ariel Investments, GAMCO Investors, and D E Shaw 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 Tavio Capital allocated the biggest weight to Zimmer Biomet Holdings Inc (NYSE:ZBH), around 20.22% of its 13F portfolio. Freshford Capital Management is also relatively very bullish on the stock, designating 3.63 percent of its 13F equity portfolio to ZBH.
As one would reasonably expect, key hedge funds have jumped into Zimmer Biomet Holdings Inc (NYSE:ZBH) headfirst. Woodline Partners, managed by Michael Rockefeller and KarláKroeker, established the largest position in Zimmer Biomet Holdings Inc (NYSE:ZBH). Woodline Partners had $30.2 million invested in the company at the end of the quarter. Christopher James's Partner Fund Management also made a $21.5 million investment in the stock during the quarter. The other funds with brand new ZBH positions are Stanley Druckenmiller's Duquesne Capital, Donald Sussman's Paloma Partners, and Michael Gelband's ExodusPoint Capital.
Let's now take a look at hedge fund activity in other stocks similar to Zimmer Biomet Holdings Inc (NYSE:ZBH). These stocks are Rockwell Automation Inc. (NYSE:ROK), Waste Connections, Inc. (NYSE:WCN), Telefonica S.A. (NYSE:TEF), Otis Worldwide Corporation (NYSE:OTIS), Fastenal Company (NASDAQ:FAST), Barclays PLC (NYSE:BCS), and STMicroelectronics N.V. (NYSE:STM). This group of stocks' market values resemble ZBH's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ROK,50,546946,13 WCN,39,720610,6 TEF,6,9842,-1 OTIS,56,2110419,52 FAST,34,633636,0 BCS,8,35407,-5 STM,12,55960,1 Average,29.3,587546,9.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.3 hedge funds with bullish positions and the average amount invested in these stocks was $588 million. That figure was $753 million in ZBH's case. Otis Worldwide Corporation (NYSE:OTIS) is the most popular stock in this table. On the other hand Telefonica S.A. (NYSE:TEF) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Zimmer Biomet Holdings Inc (NYSE:ZBH) is more popular among hedge funds. Our overall hedge fund sentiment score for ZBH is 89.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 returned 28.2% in 2020 through August 24th but still managed to beat the market by 20.6 percentage points. Hedge funds were also right about betting on ZBH as the stock returned 14.6% since the end of June and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.