The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Zimmer Biomet Holdings Inc (NYSE:ZBH) based on those filings.
Zimmer Biomet Holdings Inc (NYSE:ZBH) investors should be aware of a decrease in activity from the world’s largest hedge funds lately. ZBH was in 51 hedge funds’ portfolios at the end of the first quarter of 2020. There were 64 hedge funds in our database with ZBH holdings at the end of the previous quarter. Our calculations also showed that ZBH 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 44 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this successful trader’s “corona catalyst plays“. Also, Europe is set to become the world’s largest cannabis market, so we checked out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to review the recent hedge fund action encompassing Zimmer Biomet Holdings Inc (NYSE:ZBH).
Hedge fund activity in Zimmer Biomet Holdings Inc (NYSE:ZBH)
At Q1’s end, a total of 51 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in ZBH over the last 18 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Arthur B Cohen and Joseph Healey’s Healthcor Management LP has the number one position in Zimmer Biomet Holdings Inc (NYSE:ZBH), worth close to $83.3 million, accounting for 3.6% of its total 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, holding a $51.5 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism comprise John W. Rogers’s Ariel Investments, D. E. Shaw’s D E Shaw and Brandon Haley’s Holocene Advisors. In terms of the portfolio weights assigned to each position Tavio Capital allocated the biggest weight to Zimmer Biomet Holdings Inc (NYSE:ZBH), around 10.54% of its 13F portfolio. Prosight Capital is also relatively very bullish on the stock, earmarking 4.96 percent of its 13F equity portfolio to ZBH.
Since Zimmer Biomet Holdings Inc (NYSE:ZBH) has experienced bearish sentiment from the aggregate hedge fund industry, logic holds that there exists a select few funds who were dropping their positions entirely heading into Q4. Interestingly, Roberto Mignone’s Bridger Management said goodbye to the biggest investment of all the hedgies monitored by Insider Monkey, comprising close to $88.2 million in stock. Aaron Cowen’s fund, Suvretta Capital Management, also cut its stock, about $68 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 13 funds heading into Q4.
Let’s now review hedge fund activity in other stocks similar to Zimmer Biomet Holdings Inc (NYSE:ZBH). We will take a look at IQVIA Holdings, Inc. (NYSE:IQV), ZTO Express (Cayman) Inc. (NYSE:ZTO), AvalonBay Communities Inc (NYSE:AVB), and Prudential Financial Inc (NYSE:PRU). This group of stocks’ market values are similar to ZBH’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.25 hedge funds with bullish positions and the average amount invested in these stocks was $945 million. That figure was $621 million in ZBH’s case. IQVIA Holdings, Inc. (NYSE:IQV) is the most popular stock in this table. On the other hand ZTO Express (Cayman) Inc. (NYSE:ZTO) is the least popular one with only 15 bullish hedge fund positions. Zimmer Biomet Holdings Inc (NYSE:ZBH) 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 7.9% in 2020 through May 22nd but still beat the market by 15.6 percentage points. Hedge funds were also right about betting on ZBH as the stock returned 22.1% in Q2 (through May 22nd) 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.