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Hedge Funds Are Betting On Zogenix, Inc. (ZGNX)

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Zogenix, Inc. (NASDAQ:ZGNX) based on those filings.

Zogenix, Inc. (NASDAQ:ZGNX) has experienced an increase in activity from the world’s largest hedge funds of late. Our calculations also showed that ZGNX isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

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 51 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Peter Kolchinsky of RA Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a look at the recent hedge fund action encompassing Zogenix, Inc. (NASDAQ:ZGNX).

What does smart money think about Zogenix, Inc. (NASDAQ:ZGNX)?

At Q1’s end, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 9% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in ZGNX over the last 18 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Among these funds, RA Capital Management held the most valuable stake in Zogenix, Inc. (NASDAQ:ZGNX), which was worth $130.5 million at the end of the third quarter. On the second spot was Perceptive Advisors which amassed $85.4 million worth of shares. Avoro Capital Advisors (venBio Select Advisor), Farallon Capital, and Eversept Partners 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 Eversept Partners allocated the biggest weight to Zogenix, Inc. (NASDAQ:ZGNX), around 12.6% of its 13F portfolio. Pinz Capital is also relatively very bullish on the stock, setting aside 6.4 percent of its 13F equity portfolio to ZGNX.

Consequently, key money managers were leading the bulls’ herd. Ikarian Capital, managed by Neil Shahrestani, created the largest position in Zogenix, Inc. (NASDAQ:ZGNX). Ikarian Capital had $13.6 million invested in the company at the end of the quarter. Lawrence Hawkins’s Prosight Capital also initiated a $4 million position during the quarter. The following funds were also among the new ZGNX investors: Ken Greenberg and David Kim’s Ghost Tree Capital, Thomas Bailard’s Bailard Inc, and Matthew L Pinz’s Pinz Capital.

Let’s also examine hedge fund activity in other stocks similar to Zogenix, Inc. (NASDAQ:ZGNX). We will take a look at AMC Networks Inc (NASDAQ:AMCX), Mueller Industries, Inc. (NYSE:MLI), Corcept Therapeutics Incorporated (NASDAQ:CORT), and Hilton Grand Vacations Inc. (NYSE:HGV). All of these stocks’ market caps match ZGNX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AMCX 23 112696 -2
MLI 17 160955 -4
CORT 21 160165 0
HGV 29 512572 -17
Average 22.5 236597 -5.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $237 million. That figure was $579 million in ZGNX’s case. Hilton Grand Vacations Inc. (NYSE:HGV) is the most popular stock in this table. On the other hand Mueller Industries, Inc. (NYSE:MLI) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Zogenix, Inc. (NASDAQ:ZGNX) is more popular among hedge funds. 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 gained 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. Unfortunately ZGNX wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ZGNX were disappointed as the stock returned 17.8% during the second quarter (through the end of May) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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