The first quarter was a breeze as Powell pivoted, and China seemed eager to reach a deal with Trump. Both the S&P 500 and Russell 2000 delivered very strong gains as a result, with the Russell 2000, which is composed of smaller companies, outperforming the large-cap stocks slightly during the first quarter. Unfortunately sentiment shifted in May and August as this time China pivoted and Trump put more pressure on China by increasing tariffs. Fourth quarter brought optimism to the markets and hedge funds’ top 20 stock picks performed spectacularly in this volatile environment. These stocks delivered a total gain of 37.4% through the end of November, vs. a gain of 27.5% for the S&P 500 ETF. In this article we will look at how this market volatility affected the sentiment of hedge funds towards JD.Com Inc (NASDAQ:JD), and what that likely means for the prospects of the company and its stock.
JD.Com Inc (NASDAQ:JD) has experienced an increase in hedge fund sentiment recently. JD was in 54 hedge funds’ portfolios at the end of September. There were 45 hedge funds in our database with JD positions at the end of the previous quarter. Our calculations also showed that JD isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to 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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Andreas Halvorsen of Viking Global
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a glance at the recent hedge fund action surrounding JD.Com Inc (NASDAQ:JD).
What does smart money think about JD.Com Inc (NASDAQ:JD)?
At Q3’s end, a total of 54 of the hedge funds tracked by Insider Monkey were long this stock, a change of 20% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards JD over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in JD.Com Inc (NASDAQ:JD) was held by Tiger Global Management, which reported holding $1490.9 million worth of stock at the end of September. It was followed by Viking Global with a $759 million position. Other investors bullish on the company included D1 Capital Partners, Hillhouse Capital Management, and Fisher Asset Management. In terms of the portfolio weights assigned to each position Kontiki Capital allocated the biggest weight to JD.Com Inc (NASDAQ:JD), around 28.01% of its portfolio. Yiheng Capital is also relatively very bullish on the stock, earmarking 8.23 percent of its 13F equity portfolio to JD.
As industrywide interest jumped, key money managers were breaking ground themselves. Melvin Capital Management, managed by Gabriel Plotkin, established the most outsized call position in JD.Com Inc (NASDAQ:JD). Melvin Capital Management had $56.4 million invested in the company at the end of the quarter. Gabriel Plotkin’s Melvin Capital Management also initiated a $56.4 million position during the quarter. The following funds were also among the new JD investors: Matthew Knauer and Mina Faltas’s Nokota Management, Joe DiMenna’s ZWEIG DIMENNA PARTNERS, and Philippe Laffont’s Coatue Management.
Let’s go over hedge fund activity in other stocks similar to JD.Com Inc (NASDAQ:JD). These stocks are Emerson Electric Co. (NYSE:EMR), HCA Healthcare Inc (NYSE:HCA), Marriott International Inc (NASDAQ:MAR), and BB&T Corporation (NYSE:BBT). This group of stocks’ market caps are similar to JD’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EMR | 37 | 594019 | 5 |
| HCA | 55 | 2621149 | 4 |
| MAR | 37 | 2446310 | 10 |
| BBT | 26 | 370776 | 3 |
| Average | 38.75 | 1508064 | 5.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 38.75 hedge funds with bullish positions and the average amount invested in these stocks was $1508 million. That figure was $5279 million in JD’s case. HCA Healthcare Inc (NYSE:HCA) is the most popular stock in this table. On the other hand BB&T Corporation (NYSE:BBT) is the least popular one with only 26 bullish hedge fund positions. JD.Com Inc (NASDAQ:JD) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on JD as the stock returned 15.7% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
