Hedge Funds Souring On Zealand Pharma A/S (ZEAL)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 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 March 31st, a week after the market trough. In this article we look at what those investors think of Zealand Pharma A/S (NASDAQ:ZEAL).

Zealand Pharma A/S (NASDAQ:ZEAL) has experienced a decrease in enthusiasm from smart money in recent months. Our calculations also showed that ZEAL 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).

Video: 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 44 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.

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. We interview hedge fund managers and ask them about their best ideas. You can watch our latest hedge fund manager interview here and find out the name of the large-cap healthcare stock that Sio Capital’s Michael Castor expects to double. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to check out the new hedge fund action encompassing Zealand Pharma A/S (NASDAQ:ZEAL).

How have hedgies been trading Zealand Pharma A/S (NASDAQ:ZEAL)?

At Q1’s end, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from the fourth quarter of 2019. On the other hand, there were a total of 2 hedge funds with a bullish position in ZEAL a year ago. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Among these funds, Farallon Capital held the most valuable stake in Zealand Pharma A/S (NASDAQ:ZEAL), which was worth $25.9 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $1 million worth of shares. Royce & Associates was 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 Farallon Capital allocated the biggest weight to Zealand Pharma A/S (NASDAQ:ZEAL), around 0.23% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, dishing out 0.0047 percent of its 13F equity portfolio to ZEAL.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Soleus Capital. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified ZEAL as a viable investment and initiated a position in the stock.

Let’s check out hedge fund activity in other stocks similar to Zealand Pharma A/S (NASDAQ:ZEAL). These stocks are Luminex Corporation (NASDAQ:LMNX), Wolverine World Wide, Inc. (NYSE:WWW), MakeMyTrip Limited (NASDAQ:MMYT), and Renasant Corporation (NASDAQ:RNST). This group of stocks’ market values are similar to ZEAL’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $92 million. That figure was $27 million in ZEAL’s case. Wolverine World Wide, Inc. (NYSE:WWW) is the most popular stock in this table. On the other hand MakeMyTrip Limited (NASDAQ:MMYT) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Zealand Pharma A/S (NASDAQ:ZEAL) is even less popular than MMYT. Hedge funds dodged a bullet by taking a bearish stance towards ZEAL. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 7.9% in 2020 through May 22nd but managed to beat the market by 15.6 percentage points. Unfortunately ZEAL wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); ZEAL investors were disappointed as the stock returned 1.3% during the second quarter (through May 22nd) 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 so far in 2020.

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