We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Zogenix, Inc. (NASDAQ:ZGNX).
Zogenix, Inc. (NASDAQ:ZGNX) has experienced a decrease in activity from the world's largest hedge funds lately. Our calculations also showed that ZGNX isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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 regarding Zogenix, Inc. (NASDAQ:ZGNX).
How are hedge funds trading Zogenix, Inc. (NASDAQ:ZGNX)?
At Q2's end, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -24% from one quarter earlier. On the other hand, there were a total of 31 hedge funds with a bullish position in ZGNX 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.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Peter Kolchinsky's RA Capital Management has the largest position in Zogenix, Inc. (NASDAQ:ZGNX), worth close to $177.9 million, amounting to 9.5% of its total 13F portfolio. The second most bullish fund manager is Joseph Edelman of Perceptive Advisors, with a $167.6 million position; 3.8% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that hold long positions contain Eric Bannasch's Cadian Capital, Behzad Aghazadeh's venBio Select Advisor and Farallon Capital.
Due to the fact that Zogenix, Inc. (NASDAQ:ZGNX) has faced falling interest from the aggregate hedge fund industry, it's easy to see that there exists a select few money managers that decided to sell off their positions entirely last quarter. It's worth mentioning that Paul Marshall and Ian Wace's Marshall Wace LLP sold off the biggest position of all the hedgies tracked by Insider Monkey, totaling close to $31.1 million in stock. Brian Ashford-Russell and Tim Woolley's fund, Polar Capital, also cut its stock, about $26.7 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 9 funds last quarter.
Let's now take a look at hedge fund activity in other stocks similar to Zogenix, Inc. (NASDAQ:ZGNX). We will take a look at Centennial Resource Development, Inc. (NASDAQ:CDEV), GreenSky, Inc. (NASDAQ:GSKY), Cal-Maine Foods Inc (NASDAQ:CALM), and Euronav NV (NYSE:EURN). This group of stocks' market valuations match ZGNX's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CDEV,17,142786,2 GSKY,20,89452,5 CALM,16,182069,0 EURN,16,153669,5 Average,17.25,141994,3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $142 million. That figure was $1046 million in ZGNX's case. GreenSky, Inc. (NASDAQ:GSKY) is the most popular stock in this table. On the other hand Cal-Maine Foods Inc (NASDAQ:CALM) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Zogenix, Inc. (NASDAQ:ZGNX) 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 ZGNX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ZGNX were disappointed as the stock returned -16.2% 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.