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Were Hedge Funds Right About Zoom Video Communications, Inc. (ZM)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Zoom Video Communications, Inc. (NASDAQ:ZM) based on that data and determine whether they were really smart about the stock.

Is Zoom Video Communications, Inc. (NASDAQ:ZM) the right investment to pursue these days? Investors who are in the know were getting more bullish. The number of bullish hedge fund positions inched up by 19 recently. Our calculations also showed that ZM 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). ZM was in 47 hedge funds’ portfolios at the end of the first quarter of 2020. There were 28 hedge funds in our database with ZM holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Rajiv Jain of GQG Partners

Now we’re going to take a glance at the fresh hedge fund action regarding Zoom Video Communications, Inc. (NASDAQ:ZM).

What does smart money think about Zoom Video Communications, Inc. (NASDAQ:ZM)?

At the end of the first quarter, a total of 47 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 68% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ZM over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is ZM A Good Stock To Buy?

The largest stake in Zoom Video Communications, Inc. (NASDAQ:ZM) was held by Hillhouse Capital Management, which reported holding $905.1 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $405.9 million position. Other investors bullish on the company included Whale Rock Capital Management, Tiger Global Management LLC, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Wildcat Capital Management allocated the biggest weight to Zoom Video Communications, Inc. (NASDAQ:ZM), around 14.26% of its 13F portfolio. Strategy Capital is also relatively very bullish on the stock, earmarking 13.09 percent of its 13F equity portfolio to ZM.

As industrywide interest jumped, key money managers have jumped into Zoom Video Communications, Inc. (NASDAQ:ZM) headfirst. Renaissance Technologies, initiated the largest position in Zoom Video Communications, Inc. (NASDAQ:ZM). Renaissance Technologies had $405.9 million invested in the company at the end of the quarter. Alex Sacerdote’s Whale Rock Capital Management also made a $301.2 million investment in the stock during the quarter. The other funds with brand new ZM positions are Philippe Laffont’s Coatue Management, Rajiv Jain’s GQG Partners, and D. E. Shaw’s D E Shaw.

Let’s check out hedge fund activity in other stocks similar to Zoom Video Communications, Inc. (NASDAQ:ZM). These stocks are Walgreens Boots Alliance Inc (NASDAQ:WBA), Equinor ASA (NYSE:EQNR), Illumina, Inc. (NASDAQ:ILMN), and Moody’s Corporation (NYSE:MCO). This group of stocks’ market valuations are similar to ZM’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WBA 45 461497 7
EQNR 11 281375 -3
ILMN 34 1130705 -9
MCO 50 8552785 1
Average 35 2606591 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $2607 million. That figure was $2384 million in ZM’s case. Moody’s Corporation (NYSE:MCO) is the most popular stock in this table. On the other hand Equinor ASA (NYSE:EQNR) is the least popular one with only 11 bullish hedge fund positions. Zoom Video Communications, Inc. (NASDAQ:ZM) 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 ZM as the stock returned 73.5% 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.