ZTO Express (Cayman) Inc. (ZTO): Are Hedge Funds Right About This Stock?

In this article we will check out the progression of hedge fund sentiment towards ZTO Express (Cayman) Inc. (NYSE:ZTO) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

ZTO Express (Cayman) Inc. (NYSE:ZTO) shareholders have witnessed an increase in hedge fund interest lately. ZTO was in 15 hedge funds’ portfolios at the end of March. There were 14 hedge funds in our database with ZTO holdings at the end of the previous quarter. Our calculations also showed that ZTO 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.

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 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.

Lei Zhang Hillhouse Capital

Lei Zhang of Hillhouse Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, We take a look at lists like the 10 stocks that went up during the 2008 crash to identify the companies that are likely to deliver double digit returns in up and down markets. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a glance at the recent hedge fund action surrounding ZTO Express (Cayman) Inc. (NYSE:ZTO).

How are hedge funds trading ZTO Express (Cayman) Inc. (NYSE:ZTO)?

At the end of the first quarter, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from the fourth quarter of 2019. On the other hand, there were a total of 16 hedge funds with a bullish position in ZTO a year ago. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

More specifically, Platinum Asset Management was the largest shareholder of ZTO Express (Cayman) Inc. (NYSE:ZTO), with a stake worth $288.1 million reported as of the end of September. Trailing Platinum Asset Management was Hillhouse Capital Management, which amassed a stake valued at $90.9 million. Tairen Capital, Renaissance Technologies, and AQR Capital 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 Tairen Capital allocated the biggest weight to ZTO Express (Cayman) Inc. (NYSE:ZTO), around 7.85% of its 13F portfolio. Platinum Asset Management is also relatively very bullish on the stock, designating 7.27 percent of its 13F equity portfolio to ZTO.

Consequently, specific money managers have jumped into ZTO Express (Cayman) Inc. (NYSE:ZTO) headfirst. Hillhouse Capital Management, managed by Lei Zhang, assembled the most valuable position in ZTO Express (Cayman) Inc. (NYSE:ZTO). Hillhouse Capital Management had $90.9 million invested in the company at the end of the quarter. Leung Chi Kit’s Kadensa Capital also made a $11 million investment in the stock during the quarter. The other funds with brand new ZTO positions are Ernest Chow and Jonathan Howe’s Sensato Capital Management, Kevin Mok’s Hidden Lake Asset Management, and Will Graves’s Boardman Bay Capital Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as ZTO Express (Cayman) Inc. (NYSE:ZTO) but similarly valued. We will take a look at AvalonBay Communities Inc (NYSE:AVB), Prudential Financial Inc (NYSE:PRU), Sea Limited (NYSE:SE), and IDEXX Laboratories, Inc. (NASDAQ:IDXX). This group of stocks’ market valuations match ZTO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AVB 30 377394 7
PRU 28 367179 -8
SE 76 3132301 0
IDXX 31 517366 -6
Average 41.25 1098560 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 41.25 hedge funds with bullish positions and the average amount invested in these stocks was $1099 million. That figure was $563 million in ZTO’s case. Sea Limited (NYSE:SE) is the most popular stock in this table. On the other hand Prudential Financial Inc (NYSE:PRU) is the least popular one with only 28 bullish hedge fund positions. Compared to these stocks ZTO Express (Cayman) Inc. (NYSE:ZTO) is even less popular than PRU. Hedge funds clearly dropped the ball on ZTO as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. A small number of hedge funds were also right about betting on ZTO as the stock returned 41.5% so far in the second quarter and outperformed the market by an even larger margin.

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