How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Zumiez Inc. (NASDAQ:ZUMZ).
Is Zumiez Inc. (NASDAQ:ZUMZ) a healthy stock for your portfolio? Prominent investors are turning bullish. The number of bullish hedge fund positions improved by 3 lately. Our calculations also showed that ZUMZ isn’t among the 30 most popular stocks among hedge funds (see the video below). ZUMZ was in 16 hedge funds’ portfolios at the end of June. There were 13 hedge funds in our database with ZUMZ positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely 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. We’re going to take a look at the latest hedge fund action surrounding Zumiez Inc. (NASDAQ:ZUMZ).
What have hedge funds been doing with Zumiez Inc. (NASDAQ:ZUMZ)?
At Q2’s end, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 23% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in ZUMZ over the last 16 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Balyasny Asset Management was the largest shareholder of Zumiez Inc. (NASDAQ:ZUMZ), with a stake worth $18.7 million reported as of the end of March. Trailing Balyasny Asset Management was Maverick Capital, which amassed a stake valued at $9.4 million. Citadel Investment Group, AQR Capital Management, and Royce & Associates were also very fond of the stock, giving the stock large weights in their portfolios.
As industrywide interest jumped, key hedge funds were breaking ground themselves. Royce & Associates, managed by Chuck Royce, initiated the most valuable position in Zumiez Inc. (NASDAQ:ZUMZ). Royce & Associates had $3.6 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $2.4 million position during the quarter. The other funds with new positions in the stock are Philippe Laffont’s Coatue Management, Mike Vranos’s Ellington, and Minhua Zhang’s Weld Capital Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Zumiez Inc. (NASDAQ:ZUMZ) but similarly valued. We will take a look at Resolute Forest Products Inc (NYSE:RFP), Heska Corp (NASDAQ:HSKA), Control4 Corp (NASDAQ:CTRL), and Evolent Health Inc (NYSE:EVH). This group of stocks’ market values match ZUMZ’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RFP | 17 | 286497 | -6 |
| HSKA | 13 | 35709 | 2 |
| CTRL | 15 | 69622 | -2 |
| EVH | 16 | 51693 | -3 |
| Average | 15.25 | 110880 | -2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $111 million. That figure was $57 million in ZUMZ’s case. Resolute Forest Products Inc (NYSE:RFP) is the most popular stock in this table. On the other hand Heska Corp (NASDAQ:HSKA) is the least popular one with only 13 bullish hedge fund positions. Zumiez Inc. (NASDAQ:ZUMZ) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on ZUMZ as the stock returned 21.4% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
