Hedge Funds Are Souring On Zuora, Inc. (ZUO)

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of 4 percentage points during the first 9 months of 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Zuora, Inc. (NYSE:ZUO).

Zuora, Inc. (NYSE:ZUO) was in 19 hedge funds’ portfolios at the end of the second quarter of 2019. ZUO shareholders have witnessed a decrease in hedge fund sentiment lately. There were 21 hedge funds in our database with ZUO holdings at the end of the previous quarter. Our calculations also showed that ZUO isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 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 analyze the latest hedge fund action encompassing Zuora, Inc. (NYSE:ZUO).

Hedge fund activity in Zuora, Inc. (NYSE:ZUO)

At the end of the second quarter, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ZUO over the last 16 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Colin Moran Abdiel Capital

Colin Moran Abdiel Capital

According to Insider Monkey’s hedge fund database, Amish Mehta’s SQN Investors has the biggest position in Zuora, Inc. (NYSE:ZUO), worth close to $55.7 million, comprising 5% of its total 13F portfolio. The second most bullish fund manager is Brian Bares of Bares Capital Management, with a $37.1 million position; the fund has 1% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish consist of Panayotis Takis Sparaggis’s Alkeon Capital Management, Colin Moran’s Abdiel Capital Advisors and Greg Poole’s Echo Street Capital Management.

Since Zuora, Inc. (NYSE:ZUO) has witnessed falling interest from the smart money, it’s safe to say that there exists a select few funds that decided to sell off their entire stakes in the second quarter. Interestingly, Israel Englander’s Millennium Management dumped the biggest investment of the “upper crust” of funds monitored by Insider Monkey, worth close to $13.5 million in stock. Josh Goldberg’s fund, G2 Investment Partners Management, also cut its stock, about $4.2 million worth. These transactions are important to note, as total hedge fund interest dropped by 2 funds in the second quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Zuora, Inc. (NYSE:ZUO) but similarly valued. These stocks are Columbia Financial, Inc. (NASDAQ:CLBK), Tri Pointe Group Inc (NYSE:TPH), CNOOC Limited (NYSE:CEO), and Shutterfly, Inc. (NASDAQ:SFLY). All of these stocks’ market caps are similar to ZUO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CLBK 12 33342 4
TPH 17 175799 -1
CEO 9 257781 -4
SFLY 24 307901 -4
Average 15.5 193706 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $194 million. That figure was $191 million in ZUO’s case. Shutterfly, Inc. (NASDAQ:SFLY) is the most popular stock in this table. On the other hand CNOOC Limited (NYSE:CEO) is the least popular one with only 9 bullish hedge fund positions. Zuora, Inc. (NYSE:ZUO) is not the most popular stock in this group but hedge fund interest is still above average. 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 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. Unfortunately ZUO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ZUO were disappointed as the stock returned -1.8% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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