Was The Smart Money Right About Zoetis Inc (ZTS)?

In this article we are going to use hedge fund sentiment as a tool and determine whether Zoetis Inc (NYSE:ZTS) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Hedge fund interest in Zoetis Inc (NYSE:ZTS) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that ZTS isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). At the end of this article we will also compare ZTS to other stocks including Prologis Inc (NYSE:PLD), Altria Group Inc (NYSE:MO), and Fidelity National Information Services Inc. (NYSE:FIS) to get a better sense of its popularity.

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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 79 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, the demand for helium is soaring and there is a helium supply shortage, so we are checking out stock pitches like this emerging helium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let’s take a look at the recent hedge fund action surrounding Zoetis Inc (NYSE:ZTS).

Do Hedge Funds Think ZTS Is A Good Stock To Buy Now?

Heading into the third quarter of 2021, a total of 58 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards ZTS over the last 24 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, 0, managed by Nicolai Tangen, holds the number one position in Zoetis Inc (NYSE:ZTS). Ako Capital has a $453.3 million position in the stock, comprising 5.1% of its 13F portfolio. The second largest stake is held by William von Mueffling of 0, with a $418.1 million position; the fund has 2.8% of its 13F portfolio invested in the stock. Other professional money managers that are bullish include Barry Dargan’s 0, Paul Marshall and Ian Wace’s 0 and Peter Rathjens, Bruce Clarke and John Campbell’s 0. In terms of the portfolio weights assigned to each position Ako Capital allocated the biggest weight to Zoetis Inc (NYSE:ZTS), around 5.11% of its 13F portfolio. Bristol Gate Capital Partners is also relatively very bullish on the stock, dishing out 5.05 percent of its 13F equity portfolio to ZTS.

Since Zoetis Inc (NYSE:ZTS) has witnessed falling interest from the smart money, we can see that there lies a certain “tier” of funds who sold off their entire stakes in the second quarter. At the top of the heap, Dmitry Balyasny’s Balyasny Asset Management dumped the largest position of all the hedgies monitored by Insider Monkey, totaling about $112.6 million in stock. Terry Smith’s fund, Fundsmith Long/Short Fund, also dumped its stock, about $4.6 million worth. These transactions are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks similar to Zoetis Inc (NYSE:ZTS). These stocks are Prologis Inc (NYSE:PLD), Altria Group Inc (NYSE:MO), Fidelity National Information Services Inc. (NYSE:FIS), Mondelez International Inc (NASDAQ:MDLZ), NIO Inc. (NYSE:NIO), Gilead Sciences, Inc. (NASDAQ:GILD), and General Motors Company (NYSE:GM). This group of stocks’ market caps are closest to ZTS’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 55.1 hedge funds with bullish positions and the average amount invested in these stocks was $3292 million. That figure was $2706 million in ZTS’s case. General Motors Company (NYSE:GM) is the most popular stock in this table. On the other hand NIO Inc. (NYSE:NIO) is the least popular one with only 34 bullish hedge fund positions. Zoetis Inc (NYSE:ZTS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ZTS is 56.6. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 26.3% in 2021 through October 29th and still beat the market by 2.3 percentage points. Hedge funds were also right about betting on ZTS as the stock returned 16.3% since the end of Q2 (through 10/29) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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