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Were Hedge Funds Right About Zumiez Inc. (ZUMZ)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). 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 Zumiez Inc. (NASDAQ:ZUMZ) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Zumiez Inc. (NASDAQ:ZUMZ) investors should pay attention to a decrease in enthusiasm from smart money recently. Our calculations also showed that ZUMZ 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.

In the 21st century investor’s toolkit there are a lot of indicators stock market investors employ to value publicly traded companies. A pair of the most useful indicators are hedge fund and insider trading interest. Our researchers have shown that, historically, those who follow the top picks of the best investment managers can outperform the broader indices by a very impressive amount (see the details here).

Lee Ainslie MAVERICK CAPITAL

Lee Ainslie of Maverick Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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 we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s go over the key hedge fund action surrounding Zumiez Inc. (NASDAQ:ZUMZ).

What have hedge funds been doing with Zumiez Inc. (NASDAQ:ZUMZ)?

Heading into the second quarter of 2020, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ZUMZ over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Lee Ainslie’s Maverick Capital has the biggest position in Zumiez Inc. (NASDAQ:ZUMZ), worth close to $6.5 million, corresponding to 0.1% of its total 13F portfolio. On Maverick Capital’s heels is Renaissance Technologies, which holds a $4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish include Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Cliff Asness’s AQR Capital Management and Dmitry Balyasny’s Balyasny Asset Management. In terms of the portfolio weights assigned to each position Venator Capital Management allocated the biggest weight to Zumiez Inc. (NASDAQ:ZUMZ), around 1.24% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, designating 0.38 percent of its 13F equity portfolio to ZUMZ.

Judging by the fact that Zumiez Inc. (NASDAQ:ZUMZ) has faced bearish sentiment from the entirety of the hedge funds we track, logic holds that there was a specific group of hedgies that decided to sell off their full holdings last quarter. At the top of the heap, Israel Englander’s Millennium Management sold off the biggest stake of the “upper crust” of funds monitored by Insider Monkey, worth an estimated $6 million in stock, and Warren Lammert’s Granite Point Capital was right behind this move, as the fund cut about $1.2 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 2 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to Zumiez Inc. (NASDAQ:ZUMZ). These stocks are CBTX, Inc. (NASDAQ:CBTX), ChampionX Corporation (NYSE:APY), Guess’, Inc. (NYSE:GES), and Summit Hotel Properties Inc (NYSE:INN). This group of stocks’ market valuations are similar to ZUMZ’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CBTX 10 7008 2
APY 19 49368 2
GES 16 31475 -4
INN 12 8543 -3
Average 14.25 24099 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $24 million. That figure was $28 million in ZUMZ’s case. ChampionX Corporation (NYSE:APY) is the most popular stock in this table. On the other hand CBTX, Inc. (NASDAQ:CBTX) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Zumiez Inc. (NASDAQ:ZUMZ) 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on ZUMZ as the stock returned 58.1% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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