Should you invest in Zayo Group Holdings Inc (NYSE:ZAYO), Zoetis Inc (NYSE:ZTS), eBay Inc (NASDAQ:EBAY) and Priceline.com Inc (NASDAQ:PCLN)? Our research shows that one strategy to effectively beat the market is to follow smart money investors into their top picks and one fund that is bullish on all of these four stocks is David Steinberg and Eric Udoff’s Marlowe Partners. Marlowe is a Manhattan-based hedge fund which had an equity portfolio worth of $136.78 million. According to our calculations, the fund returned 12% from eight of its long positions in companies having a market cap of at least $1 billion.
It’s no secret that hedge funds have been underperforming the market for years in aggregate, as many in the media are only all too happy to pound home. That could lead the average reader to think that hedge funds are bad stock pickers, which is not actually the case. When we look at the third-quarter returns of the hedge funds in our database which had at least five long positions in companies valued at $1 billion or more, we see their long picks returned 8.3% on average, a full 5.0 percentage points clear of S&P 500 ETFs. However, that long stock-picking prowess is often overshadowed by the hedged portion of their portfolios, in options, bonds, and short positions. We believe that investors should pay attention to hedge funds’ top picks for a chance to beat the market.
Having said that, let’s take a closer look at the four aforementioned investments of Marlowe Partners and see the general hedge fund sentiment towards them.
Marlowe Partners added 211,472 new shares of Zayo Group Holdings Inc (NYSE:ZAYO) to its equity portfolio in the third quarter, ending the period with over 1.85 million shares of the company, which had a total value of over $55.13 million. The stock returned 6.4% during the third quarter. Heading into the third quarter of 2016, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, up by 14% from one quarter earlier. Among these funds, SPO Advisory Corp held the most valuable stake in Zayo Group Holdings Inc (NYSE:ZAYO), which was worth $215 million at the end of the second quarter. On the second spot was Cadian Capital, which amassed $156.6 million worth of shares. Moreover, Millennium Management, Brookside Capital, and Criterion Capital were also bullish on Zayo Group Holdings Inc (NYSE:ZAYO).
In Zoetis Inc (NYSE:ZTS), Marlowe held 712,881 shares, valued at $37.07 million. The stake was lucrative for the firm as the company’s stock delivered a return of 9.6% in the quarter that ended September 30. At the end of the second quarter, a total of 46 funds followed by our team were bullish on Zoetis, down by 4% over the quarter. More specifically, Pershing Square was the largest shareholder of Zoetis Inc (NYSE:ZTS), with a stake worth $1.0 billion reported as of the end of June. Trailing Pershing Square was Marshall Wace LLP, which amassed a stake valued at $434.7 million. Cantillon Capital Management, Point72 Asset Management, and Two Creeks Capital Management also held valuable positions in the company.