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Were Hedge Funds Right About Zai Lab Limited (ZLAB)?

The latest 13F reporting period has come and gone, and 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. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtZai Lab Limited (NASDAQ:ZLAB) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Zai Lab Limited (NASDAQ:ZLAB) the right investment to pursue these days? Prominent investors were taking a pessimistic view. The number of long hedge fund bets were cut by 4 lately. Our calculations also showed that ZLAB 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.

To the average investor there are a lot of indicators investors have at their disposal to evaluate publicly traded companies. A couple of the most innovative indicators are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the best picks of the elite money managers can trounce the broader indices by a very impressive margin (see the details here).

Kris Jenner - Rock Springs Capital

Kris Jenner of Rock Springs Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Now we’re going to check out the recent hedge fund action surrounding Zai Lab Limited (NASDAQ:ZLAB).

How have hedgies been trading Zai Lab Limited (NASDAQ:ZLAB)?

At the end of the first quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from the previous quarter. On the other hand, there were a total of 17 hedge funds with a bullish position in ZLAB a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Among these funds, Segantii Capital held the most valuable stake in Zai Lab Limited (NASDAQ:ZLAB), which was worth $93.5 million at the end of the third quarter. On the second spot was Indus Capital which amassed $41 million worth of shares. Rock Springs Capital Management, Hillhouse Capital Management, and Millennium Management 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 Prince Street Capital Management allocated the biggest weight to Zai Lab Limited (NASDAQ:ZLAB), around 9.9% of its 13F portfolio. Segantii Capital is also relatively very bullish on the stock, earmarking 7.46 percent of its 13F equity portfolio to ZLAB.

Seeing as Zai Lab Limited (NASDAQ:ZLAB) has witnessed bearish sentiment from hedge fund managers, it’s safe to say that there were a few money managers that decided to sell off their full holdings last quarter. At the top of the heap, Michael Gelband’s ExodusPoint Capital said goodbye to the biggest investment of all the hedgies followed by Insider Monkey, comprising close to $9.9 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund sold off about $2.7 million worth. These transactions are important to note, as total hedge fund interest dropped by 4 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to Zai Lab Limited (NASDAQ:ZLAB). We will take a look at Cullen/Frost Bankers, Inc. (NYSE:CFR), First Citizens BancShares Inc. (NASDAQ:FCNCA), The Hanover Insurance Group, Inc. (NYSE:THG), and Switch, Inc. (NYSE:SWCH). All of these stocks’ market caps match ZLAB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CFR 18 40108 0
FCNCA 17 129488 -6
THG 24 134965 3
SWCH 24 394487 6
Average 20.75 174762 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $175 million. That figure was $365 million in ZLAB’s case. The Hanover Insurance Group, Inc. (NYSE:THG) is the most popular stock in this table. On the other hand First Citizens BancShares Inc. (NASDAQ:FCNCA) is the least popular one with only 17 bullish hedge fund positions. Zai Lab Limited (NASDAQ:ZLAB) is not the most popular stock in this group but hedge fund interest is still above average. 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 gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on ZLAB as the stock returned 59.5% in Q2 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.