How Zafgen Inc (ZFGN) Stacks Up Against Its Peers

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

Hedge fund interest in Zafgen Inc (NASDAQ:ZFGN) shares was flat during the third quarter. This is usually a negative indicator. 9 hedge funds that we track owned the stock on September 30, same as on June 30. At the end of this article we will also compare ZFGN to other stocks including Akarti Therapeutics PLC (ADR) (NASDAQ:AKTX), Cherokee Inc. (NASDAQ:CHKE), and Fate Therapeutics Inc (NASDAQ:FATE) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

What does the smart money think about Zafgen Inc (NASDAQ:ZFGN)?

At the end of the third quarter, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, unchanged from the previous quarter. By comparison, 12 hedge funds held shares or bullish call options in ZFGN heading into this year, which has since fallen by 25%. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Anders Hove and Bong Koh’s VHCP Management has the most valuable position in Zafgen Inc (NASDAQ:ZFGN), worth close to $2 million, comprising 2% of its total 13F portfolio. Sitting at the No. 2 spot is Royce & Associates, led by Chuck Royce, holding a $1.7 million position. Some other peers that hold long positions contain Dmitry Balyasny’s Balyasny Asset Management, D E Shaw, one of the biggest hedge funds in the world, and Cliff Asness’ AQR Capital Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds, which is based on the performance of their 13F long positions in non-micro-cap stocks.

Seeing as Zafgen Inc (NASDAQ:ZFGN) has witnessed falling interest from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of fund managers that slashed their positions entirely last quarter. Interestingly, James E. Flynn’s Deerfield Management cut the biggest investment of the 700 funds monitored by Insider Monkey, valued at close to $18.3 million in stock, and Farallon Capital was right behind this move, as the fund dumped about $5 million worth of shares.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Zafgen Inc (NASDAQ:ZFGN) but similarly valued. We will take a look at Akarti Therapeutics PLC (ADR) (NASDAQ:AKTX), Cherokee Inc. (NASDAQ:CHKE), Fate Therapeutics Inc (NASDAQ:FATE), and PC Tel Inc (NASDAQ:PCTI). All of these stocks’ market caps are similar to ZFGN’s market cap.

As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $24 million. That figure was $7 million in ZFGN’s case. Akarti Therapeutics PLC (ADR) (NASDAQ:AKTX) is the most popular stock in this table. On the other hand PC Tel Inc (NASDAQ:PCTI) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Zafgen Inc (NASDAQ:ZFGN) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

Disclosure: None