Did The Smart Money Get Pinduoduo Inc. (PDD) Right?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 867 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 September 30th, when the S&P 500 Index was trading around the 4300 level. Since then investors decided to bet on the economic recovery and a stock market rebound even though we experienced a temporary correction in January. In this article you are going to find out whether hedge funds thought Pinduoduo Inc. (NASDAQ:PDD) was a good investment heading into the fourth quarter and how the stock traded in comparison to the top hedge fund picks.

Pinduoduo Inc. (NASDAQ:PDD) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 49 hedge funds’ portfolios at the end of the third quarter of 2021. Our calculations also showed that PDD isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). At the end of this article we will also compare PDD to other stocks including General Electric Company (NYSE:GE), Diageo plc (NYSE:DEO), and JD.Com Inc (NASDAQ:JD) to get a better sense of its popularity.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we’re going to view the new hedge fund action encompassing Pinduoduo Inc. (NASDAQ:PDD).

Lei Zhang of Hillhouse Capital Management

Do Hedge Funds Think PDD Is A Good Stock To Buy Now?

At Q3’s end, a total of 49 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 34 hedge funds with a bullish position in PDD a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Pinduoduo Inc. (NASDAQ:PDD) was held by Tiger Global Management LLC, which reported holding $1274.2 million worth of stock at the end of September. It was followed by Tybourne Capital Management with a $317.3 million position. Other investors bullish on the company included Fisher Asset Management, Hillhouse Capital Management, and SCGE Management. In terms of the portfolio weights assigned to each position Tybourne Capital Management allocated the biggest weight to Pinduoduo Inc. (NASDAQ:PDD), around 7.99% of its 13F portfolio. Old Well Partners is also relatively very bullish on the stock, setting aside 5.52 percent of its 13F equity portfolio to PDD.

Judging by the fact that Pinduoduo Inc. (NASDAQ:PDD) has faced falling interest from the smart money, we can see that there is a sect of funds that decided to sell off their full holdings by the end of the third quarter. At the top of the heap, Run Ye, Junji Takegami and Hoyon Hwang’s Tiger Pacific Capital sold off the largest stake of the “upper crust” of funds monitored by Insider Monkey, totaling about $72.9 million in stock, and Charles Huang’s IvyRock Asset Management was right behind this move, as the fund said goodbye to about $29 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks similar to Pinduoduo Inc. (NASDAQ:PDD). We will take a look at General Electric Company (NYSE:GE), Diageo plc (NYSE:DEO), JD.Com Inc (NASDAQ:JD), CVS Health Corporation (NYSE:CVS), Target Corporation (NYSE:TGT), Anheuser-Busch InBev SA/NV (NYSE:BUD), and Block, Inc. (NYSE:SQ). This group of stocks’ market values are closest to PDD’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 50.9 hedge funds with bullish positions and the average amount invested in these stocks was $4447 million. That figure was $3538 million in PDD’s case. Block, Inc. (NYSE:SQ) is the most popular stock in this table. On the other hand Anheuser-Busch InBev SA/NV (NYSE:BUD) is the least popular one with only 11 bullish hedge fund positions. Pinduoduo Inc. (NASDAQ:PDD) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PDD is 53.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and surpassed the market again by 3.6 percentage points. Unfortunately, PDD wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); PDD investors were disappointed as the stock returned -34% since the end of September (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.

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