Hedge Funds Are Dumping ZTO Express (Cayman) Inc. (ZTO)

Legendary investors such as Leon Cooperman and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those elite funds in these small-cap stocks. In the following paragraphs, we analyze ZTO Express (Cayman) Inc. (NYSE:ZTO) from the perspective of those elite funds.

ZTO Express (Cayman) Inc. (NYSE:ZTO) shareholders have witnessed a decrease in hedge fund sentiment in recent months. ZTO was in 12 hedge funds’ portfolios at the end of September. There were 15 hedge funds in our database with ZTO positions at the end of the previous quarter. Our calculations also showed that zto isn’t among the 30 most popular stocks among hedge funds.

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 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 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Kerr Neilson

We’re going to take a peek at the fresh hedge fund action encompassing ZTO Express (Cayman) Inc. (NYSE:ZTO).

What does the smart money think about ZTO Express (Cayman) Inc. (NYSE:ZTO)?

At Q3’s end, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in ZTO over the last 13 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with ZTO Positions

Among these funds, Platinum Asset Management held the most valuable stake in ZTO Express (Cayman) Inc. (NYSE:ZTO), which was worth $156.6 million at the end of the third quarter. On the second spot was Tairen Capital which amassed $54 million worth of shares. Moreover, Tiger Global Management LLC, Sensato Capital Management, and Tudor Investment Corp were also bullish on ZTO Express (Cayman) Inc. (NYSE:ZTO), allocating a large percentage of their portfolios to this stock.

Judging by the fact that ZTO Express (Cayman) Inc. (NYSE:ZTO) has witnessed declining sentiment from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of hedgies that slashed their positions entirely last quarter. Intriguingly, Noam Gottesman’s GLG Partners dumped the biggest position of all the hedgies tracked by Insider Monkey, valued at about $11.9 million in stock, and Jim Simons’s Renaissance Technologies was right behind this move, as the fund said goodbye to about $3.4 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as ZTO Express (Cayman) Inc. (NYSE:ZTO) but similarly valued. We will take a look at Henry Schein, Inc. (NASDAQ:HSIC), J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT), Alliance Data Systems Corporation (NYSE:ADS), and Barrick Gold Corporation (NYSE:ABX). This group of stocks’ market valuations are closest to ZTO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HSIC 22 1894898 2
JBHT 29 344772 1
ADS 37 2479223 5
ABX 33 486948 4
Average 30.25 1301460 3

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.25 hedge funds with bullish positions and the average amount invested in these stocks was $1.30 billion. That figure was $245 million in ZTO’s case. Alliance Data Systems Corporation (NYSE:ADS) is the most popular stock in this table. On the other hand Henry Schein, Inc. (NASDAQ:HSIC) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks ZTO Express (Cayman) Inc. (NYSE:ZTO) is even less popular than HSIC. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

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