Hedge Funds Can’t Buy Enough Of Zymeworks Inc. (ZYME)

In this article you are going to find out whether hedge funds think Zymeworks Inc. (NYSE:ZYME) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Zymeworks Inc. (NYSE:ZYME) a worthy stock to buy now? The best stock pickers are becoming hopeful. The number of bullish hedge fund positions increased by 3 in recent months. Our calculations also showed that ZYME 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). ZYME was in 27 hedge funds’ portfolios at the end of the first quarter of 2020. There were 24 hedge funds in our database with ZYME positions at the end of the previous quarter.

Video: 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 a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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.

Samuel Isaly Orbimed Advisors

Samuel Isaly of OrbiMed Advisors

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. 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. Keeping this in mind let’s take a look at the new hedge fund action surrounding Zymeworks Inc. (NYSE:ZYME).

What have hedge funds been doing with Zymeworks Inc. (NYSE:ZYME)?

Heading into the second quarter of 2020, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from one quarter earlier. On the other hand, there were a total of 14 hedge funds with a bullish position in ZYME a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Perceptive Advisors held the most valuable stake in Zymeworks Inc. (NYSE:ZYME), which was worth $126.1 million at the end of the third quarter. On the second spot was Great Point Partners which amassed $82.5 million worth of shares. Farallon Capital, Baker Bros. Advisors, and Vivo Capital 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 Great Point Partners allocated the biggest weight to Zymeworks Inc. (NYSE:ZYME), around 8.61% of its 13F portfolio. Logos Capital is also relatively very bullish on the stock, designating 4.11 percent of its 13F equity portfolio to ZYME.

As one would reasonably expect, key hedge funds have been driving this bullishness. Redmile Group, managed by Jeremy Green, assembled the largest position in Zymeworks Inc. (NYSE:ZYME). Redmile Group had $30.8 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $29.5 million position during the quarter. The other funds with brand new ZYME positions are Samuel Isaly’s OrbiMed Advisors, Arthur B Cohen and Joseph Healey’s Healthcor Management LP, and Anand Parekh’s Alyeska Investment Group.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Zymeworks Inc. (NYSE:ZYME) but similarly valued. These stocks are Gibraltar Industries Inc (NASDAQ:ROCK), Cimpress plc (NASDAQ:CMPR), Ryder System, Inc. (NYSE:R), and Mack Cali Realty Corp (NYSE:CLI). All of these stocks’ market caps are similar to ZYME’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ROCK 19 103608 -4
CMPR 19 269535 1
R 18 157531 -5
CLI 10 73802 -5
Average 16.5 151119 -3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $151 million. That figure was $655 million in ZYME’s case. Gibraltar Industries Inc (NASDAQ:ROCK) is the most popular stock in this table. On the other hand Mack Cali Realty Corp (NYSE:CLI) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Zymeworks Inc. (NYSE:ZYME) 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 ZYME wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ZYME were disappointed as the stock returned 7.5% 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.