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Hedge Funds Have Never Been This Bullish On Zscaler, Inc. (ZS)

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Zscaler, Inc. (NASDAQ:ZS) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Is Zscaler, Inc. (NASDAQ:ZS) a sound investment today? The smart money was getting more bullish. The number of bullish hedge fund bets went up by 8 in recent months. Zscaler, Inc. (NASDAQ:ZS) was in 35 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 28. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ZS 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). There were 27 hedge funds in our database with ZS holdings at the end of March.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Today there are dozens of formulas stock market investors can use to evaluate their stock investments. A duo of the less known formulas are hedge fund and insider trading interest. We have shown that, historically, those who follow the top picks of the best hedge fund managers can beat their index-focused peers by a significant amount (see the details here).

Richard Driehaus of Driehaus Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now let’s take a glance at the latest hedge fund action encompassing Zscaler, Inc. (NASDAQ:ZS).

How are hedge funds trading Zscaler, Inc. (NASDAQ:ZS)?

At the end of June, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 30% from the previous quarter. On the other hand, there were a total of 25 hedge funds with a bullish position in ZS a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Zscaler, Inc. (NASDAQ:ZS) was held by D E Shaw, which reported holding $229.7 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $72.7 million position. Other investors bullish on the company included Citadel Investment Group, Two Sigma Advisors, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Cota Capital allocated the biggest weight to Zscaler, Inc. (NASDAQ:ZS), around 8.95% of its 13F portfolio. Mark Asset Management is also relatively very bullish on the stock, designating 2.28 percent of its 13F equity portfolio to ZS.

As one would reasonably expect, key hedge funds were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the most valuable position in Zscaler, Inc. (NASDAQ:ZS). Arrowstreet Capital had $58.2 million invested in the company at the end of the quarter. Renaissance Technologies also made a $19 million investment in the stock during the quarter. The following funds were also among the new ZS investors: Highbridge Capital Management, Richard Driehaus’s Driehaus Capital, and David Harding’s Winton Capital Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Zscaler, Inc. (NASDAQ:ZS) but similarly valued. We will take a look at Kansas City Southern (NYSE:KSU), Jack Henry & Associates, Inc. (NASDAQ:JKHY), Roku, Inc. (NASDAQ:ROKU), Boston Properties, Inc. (NYSE:BXP), EPAM Systems Inc (NYSE:EPAM), Teradyne, Inc. (NASDAQ:TER), and Dover Corporation (NYSE:DOV). All of these stocks’ market caps are closest to ZS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KSU 47 502734 2
JKHY 31 276056 4
ROKU 41 450808 6
BXP 36 539228 7
EPAM 28 482887 1
TER 34 1354430 6
DOV 40 683970 9
Average 36.7 612873 5

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.7 hedge funds with bullish positions and the average amount invested in these stocks was $613 million. That figure was $642 million in ZS’s case. Kansas City Southern (NYSE:KSU) is the most popular stock in this table. On the other hand EPAM Systems Inc (NYSE:EPAM) is the least popular one with only 28 bullish hedge fund positions. Zscaler, Inc. (NASDAQ:ZS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ZS is 58.4. 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. 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. A small number of hedge funds were also right about betting on ZS as the stock returned 30.9% since the end of June and outperformed the market by an even larger margin.

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