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Zynga Inc (ZNGA) Fell Out Of Favor With Hedge Funds

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In this article you are going to find out whether hedge funds think Zynga Inc (NASDAQ:ZNGA) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Zynga Inc (NASDAQ:ZNGA) was in 47 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 59. ZNGA has seen a decrease in activity from the world's largest hedge funds lately. There were 52 hedge funds in our database with ZNGA holdings at the end of December. Our calculations also showed that ZNGA isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. 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 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.

David Brown Hawk Ridge Partners
David Brown Hawk Ridge Partners

David Brown of Hawk Ridge Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation, which is why we are checking out this inflation play. We go through lists like 10 best gold stocks to buy to identify promising stocks. 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. Now we're going to take a gander at the key hedge fund action surrounding Zynga Inc (NASDAQ:ZNGA).

Do Hedge Funds Think ZNGA Is A Good Stock To Buy Now?

At Q1's end, a total of 47 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from one quarter earlier. By comparison, 59 hedge funds held shares or bullish call options in ZNGA a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Zynga Inc (NASDAQ:ZNGA) was held by Diamond Hill Capital, which reported holding $162.4 million worth of stock at the end of December. It was followed by Cadian Capital with a $156.2 million position. Other investors bullish on the company included Iridian Asset Management, Citadel Investment Group, and Renaissance Technologies. In terms of the portfolio weights assigned to each position 0 allocated the biggest weight to Zynga Inc (NASDAQ:ZNGA), around 13.55% of its 13F portfolio. 0 is also relatively very bullish on the stock, designating 9.62 percent of its 13F equity portfolio to ZNGA.

Judging by the fact that Zynga Inc (NASDAQ:ZNGA) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there lies a certain "tier" of hedge funds that slashed their positions entirely last quarter. Interestingly, Gaurav Kapadia's XN Exponent Advisors cut the biggest stake of the 750 funds monitored by Insider Monkey, valued at about $39 million in stock, and Kevin Cottrell and Chris LaSusa's KCL Capital was right behind this move, as the fund sold off about $19.2 million worth. These moves are interesting, as total hedge fund interest was cut by 5 funds last quarter.

Let's now review hedge fund activity in other stocks similar to Zynga Inc (NASDAQ:ZNGA). We will take a look at Dropbox, Inc. (NASDAQ:DBX), Cable One Inc (NYSE:CABO), Camden Property Trust (NYSE:CPT), Essential Utilities Inc (NYSE:WTRG), A. O. Smith Corporation (NYSE:AOS), Apollo Global Management Inc (NYSE:APO), and Lear Corporation (NYSE:LEA). This group of stocks' market values resemble ZNGA's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DBX,31,775813,-12 CABO,23,694559,6 CPT,24,614554,-2 WTRG,19,266338,6 AOS,24,420942,-7 APO,44,2362179,14 LEA,23,1217537,-13 Average,26.9,907417,-1.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.9 hedge funds with bullish positions and the average amount invested in these stocks was $907 million. That figure was $1143 million in ZNGA's case. Apollo Global Management Inc (NYSE:APO) is the most popular stock in this table. On the other hand Essential Utilities Inc (NYSE:WTRG) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Zynga Inc (NASDAQ:ZNGA) is more popular among hedge funds. Our overall hedge fund sentiment score for ZNGA is 73.9. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.4% in 2021 through June 18th and still beat the market by 6.1 percentage points. Unfortunately ZNGA wasn't nearly as popular as these 5 stocks and hedge funds that were betting on ZNGA were disappointed as the stock returned 1.1% since the end of the first quarter (through 6/18) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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