We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Zogenix, Inc. (NASDAQ:ZGNX) is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Zogenix, Inc. (NASDAQ:ZGNX) investors should be aware of a decrease in hedge fund interest lately. ZGNX was in 33 hedge funds’ portfolios at the end of December. There were 34 hedge funds in our database with ZGNX positions at the end of the previous quarter. Our calculations also showed that ZGNX isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Peter Kolchinsky of RA Capital Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. With all of this in mind let’s go over the recent hedge fund action encompassing Zogenix, Inc. (NASDAQ:ZGNX).
Hedge fund activity in Zogenix, Inc. (NASDAQ:ZGNX)
At the end of the fourth quarter, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the third quarter of 2019. On the other hand, there were a total of 35 hedge funds with a bullish position in ZGNX a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
More specifically, Perceptive Advisors was the largest shareholder of Zogenix, Inc. (NASDAQ:ZGNX), with a stake worth $193.4 million reported as of the end of September. Trailing Perceptive Advisors was RA Capital Management, which amassed a stake valued at $117.9 million. Cadian Capital, venBio Select Advisor, and Farallon 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 Cadian Capital allocated the biggest weight to Zogenix, Inc. (NASDAQ:ZGNX), around 5.01% of its 13F portfolio. Eversept Partners is also relatively very bullish on the stock, setting aside 5.01 percent of its 13F equity portfolio to ZGNX.
Seeing as Zogenix, Inc. (NASDAQ:ZGNX) has faced a decline in interest from hedge fund managers, it’s easy to see that there is a sect of hedgies who sold off their positions entirely heading into Q4. Intriguingly, Israel Englander’s Millennium Management dumped the largest investment of all the hedgies monitored by Insider Monkey, worth about $19.2 million in stock. Steve Cohen’s fund, Point72 Asset Management, also said goodbye to its stock, about $13.3 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 1 funds heading into Q4.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Zogenix, Inc. (NASDAQ:ZGNX) but similarly valued. We will take a look at Progyny, Inc. (NASDAQ:PGNY), Stepan Company (NYSE:SCL), First Bancorp (NYSE:FBP), and ChemoCentryx Inc (NASDAQ:CCXI). This group of stocks’ market values match ZGNX’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PGNY | 8 | 20023 | 8 |
| SCL | 13 | 71721 | -2 |
| FBP | 32 | 194396 | 11 |
| CCXI | 23 | 531676 | 6 |
| Average | 19 | 204454 | 5.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $204 million. That figure was $928 million in ZGNX’s case. First Bancorp (NYSE:FBP) is the most popular stock in this table. On the other hand Progyny, Inc. (NASDAQ:PGNY) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Zogenix, Inc. (NASDAQ:ZGNX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately ZGNX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ZGNX were disappointed as the stock returned -55.8% during the first two and a half months of 2020 (through March 25th) 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 most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
