Hedge Funds Are Cashing Out Of Zumiez Inc. (ZUMZ)

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) and determine whether hedge funds had an edge regarding this stock.

Zumiez Inc. (NASDAQ:ZUMZ) shareholders have witnessed a decrease in activity from the world’s largest hedge funds recently. Zumiez Inc. (NASDAQ:ZUMZ) was in 19 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 24. There were 22 hedge funds in our database with ZUMZ positions at the end of the first quarter. Our calculations also showed that ZUMZ isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

In the eyes of most shareholders, hedge funds are perceived as worthless, old financial tools of years past. While there are more than 8000 funds trading today, Our researchers hone in on the masters of this group, around 850 funds. These hedge fund managers control most of the smart money’s total asset base, and by shadowing their highest performing equity investments, Insider Monkey has unearthed various investment strategies that have historically outstripped Mr. Market. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey we scour multiple sources to uncover 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 and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. With all of this in mind we’re going to take a look at the new hedge fund action regarding Zumiez Inc. (NASDAQ:ZUMZ).

What have hedge funds been doing with Zumiez Inc. (NASDAQ:ZUMZ)?

At the end of June, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ZUMZ over the last 20 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, Intrinsic Edge Capital was the largest shareholder of Zumiez Inc. (NASDAQ:ZUMZ), with a stake worth $6.7 million reported as of the end of September. Trailing Intrinsic Edge Capital was Renaissance Technologies, which amassed a stake valued at $5.8 million. Point72 Asset Management, Millennium Management, and Citadel Investment Group 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 Intrinsic Edge Capital allocated the biggest weight to Zumiez Inc. (NASDAQ:ZUMZ), around 0.62% of its 13F portfolio. Prescott Group Capital Management is also relatively very bullish on the stock, designating 0.18 percent of its 13F equity portfolio to ZUMZ.

Seeing as Zumiez Inc. (NASDAQ:ZUMZ) has witnessed falling interest from the aggregate hedge fund industry, we can see that there exists a select few funds that elected to cut their entire stakes heading into Q3. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management dumped the biggest position of the “upper crust” of funds followed by Insider Monkey, comprising about $1.4 million in stock. Brandon Osten’s fund, Venator Capital Management, also said goodbye to its stock, about $1.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 3 funds heading into Q3.

Let’s now review hedge fund activity in other stocks similar to Zumiez Inc. (NASDAQ:ZUMZ). These stocks are trivago N.V. (NASDAQ:TRVG), United Fire Group, Inc. (NASDAQ:UFCS), Dine Brands Global, Inc. (NYSE:DIN), Unisys Corporation (NYSE:UIS), Homology Medicines, Inc. (NASDAQ:FIXX), Federal Agricultural Mortgage Corp. (NYSE:AGM), and OFG Bancorp (NYSE:OFG). All of these stocks’ market caps match ZUMZ’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TRVG 7 61979 0
UFCS 6 7347 1
DIN 25 72801 4
UIS 19 59404 3
FIXX 16 52272 1
AGM 8 17724 -1
OFG 11 10553 -1
Average 13.1 40297 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.1 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $40 million in ZUMZ’s case. Dine Brands Global, Inc. (NYSE:DIN) is the most popular stock in this table. On the other hand United Fire Group, Inc. (NASDAQ:UFCS) is the least popular one with only 6 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 overall hedge fund sentiment score for ZUMZ is 60. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately ZUMZ wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ZUMZ were disappointed as the stock returned 1.6% in Q3 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 many of these stocks already outperformed the market so far this year.

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