Were Hedge Funds Right About Piling Into Zendesk Inc (ZEN)?

Will the new coronavirus cause a recession in US in the next 6 months? On February 27th, we put the probability at 75% and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Zendesk Inc (NYSE:ZEN).

Zendesk Inc (NYSE:ZEN) has seen an increase in support from the world’s most elite money managers in recent months. Our calculations also showed that ZEN 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.

Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management

We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). 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. Now let’s view the key hedge fund action regarding Zendesk Inc (NYSE:ZEN).

Hedge fund activity in Zendesk Inc (NYSE:ZEN)

At the end of the fourth quarter, a total of 61 of the hedge funds tracked by Insider Monkey were long this stock, a change of 30% from the third quarter of 2019. By comparison, 53 hedge funds held shares or bullish call options in ZEN 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.

More specifically, Whale Rock Capital Management was the largest shareholder of Zendesk Inc (NYSE:ZEN), with a stake worth $206.3 million reported as of the end of September. Trailing Whale Rock Capital Management was SCGE Management, which amassed a stake valued at $124.1 million. Polar Capital, Echo Street Capital Management, and Citadel Investment Group 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 Dendur Capital allocated the biggest weight to Zendesk Inc (NYSE:ZEN), around 8.18% of its 13F portfolio. Toronado Partners is also relatively very bullish on the stock, earmarking 8.17 percent of its 13F equity portfolio to ZEN.

Consequently, some big names were leading the bulls’ herd. Balyasny Asset Management, managed by Dmitry Balyasny, created the biggest position in Zendesk Inc (NYSE:ZEN). Balyasny Asset Management had $85.6 million invested in the company at the end of the quarter. Josh Resnick’s Jericho Capital Asset Management also initiated a $69.1 million position during the quarter. The other funds with brand new ZEN positions are Brandon Haley’s Holocene Advisors, James Crichton’s Hitchwood Capital Management, and Jim Simons Renaissance Technologies.

Let’s check out hedge fund activity in other stocks similar to Zendesk Inc (NYSE:ZEN). We will take a look at Sensata Technologies Holding plc (NYSE:ST), News Corp (NASDAQ:NWS), Coty Inc (NYSE:COTY), and Euronet Worldwide, Inc. (NASDAQ:EEFT). All of these stocks’ market caps resemble ZEN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ST 23 1309456 0
NWS 7 31884 -5
COTY 29 346957 4
EEFT 47 410495 11
Average 26.5 524698 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $525 million. That figure was $1843 million in ZEN’s case. Euronet Worldwide, Inc. (NASDAQ:EEFT) is the most popular stock in this table. On the other hand News Corp (NASDAQ:NWS) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Zendesk Inc (NYSE:ZEN) is more popular among hedge funds. 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 lost 1.0% in 2020 through April 20th but still managed to beat the market by 11 percentage points. Hedge funds were also right about betting on ZEN, though not to the same extent, as the stock returned -5.6% in 2020 (through April 20th) and outperformed the market as well.
5 Most Popular Stocks Among Hedge Funds
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.