Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index ETFs returned approximately 27.5% through the end of November (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Zion Oil & Gas Inc (NASDAQ:ZN).
Zion Oil & Gas Inc (NASDAQ:ZN) was in 4 hedge funds’ portfolios at the end of September. ZN has seen an increase in hedge fund sentiment recently. There were 3 hedge funds in our database with ZN holdings at the end of the previous quarter. Our calculations also showed that ZN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Israel Englander of Millennium Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now we’re going to take a peek at the key hedge fund action regarding Zion Oil & Gas Inc (NASDAQ:ZN).
How are hedge funds trading Zion Oil & Gas Inc (NASDAQ:ZN)?
At the end of the third quarter, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 33% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ZN over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Israel Englander’s Millennium Management has the number one position in Zion Oil & Gas Inc (NASDAQ:ZN), worth close to $0 million, comprising less than 0.1%% of its total 13F portfolio. On Millennium Management’s heels is Renaissance Technologies, holding a $0 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other peers with similar optimism contain Ken Griffin’s Citadel Investment Group, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners and . In terms of the portfolio weights assigned to each position LMR Partners allocated the biggest weight to Zion Oil & Gas Inc (NASDAQ:ZN), around 0.0004% of its 13F portfolio. Millennium Management is also relatively very bullish on the stock, earmarking 0.0001 percent of its 13F equity portfolio to ZN.
With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Citadel Investment Group, managed by Ken Griffin, assembled the largest position in Zion Oil & Gas Inc (NASDAQ:ZN). Citadel Investment Group had $0 million invested in the company at the end of the quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Zion Oil & Gas Inc (NASDAQ:ZN) but similarly valued. These stocks are AEterna Zentaris Inc. (NASDAQ:AEZS), Natuzzi, S.p.A (NYSE:NTZ), FARMMI, INC. (NASDAQ:FAMI), and eMagin Corporation (NYSE:EMAN). This group of stocks’ market caps resemble ZN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AEZS | 5 | 676 | 1 |
| NTZ | 1 | 319 | 0 |
| FAMI | 1 | 285 | 0 |
| EMAN | 2 | 73 | -1 |
| Average | 2.25 | 338 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 2.25 hedge funds with bullish positions and the average amount invested in these stocks was $0 million. That figure was $0 million in ZN’s case. AEterna Zentaris Inc. (NASDAQ:AEZS) is the most popular stock in this table. On the other hand Natuzzi, S.p.A (NYSE:NTZ) is the least popular one with only 1 bullish hedge fund positions. Zion Oil & Gas Inc (NASDAQ:ZN) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately ZN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ZN were disappointed as the stock returned -28% during the fourth quarter (through the end of November) 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.
