Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the third quarter we observed increased volatility and small-cap stocks underperformed the market. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards NetEase, Inc (ADR) (NASDAQ:NTES) to find out whether it was one of their high conviction long-term ideas.
NetEase, Inc (ADR) (NASDAQ:NTES) has experienced a decrease in hedge fund sentiment of late. NTES was in 26 hedge funds’ portfolios at the end of September. There were 36 hedge funds in our database with NTES positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Endo International plc – Ordinary Shares (NASDAQ:ENDP), Dollar Tree, Inc. (NASDAQ:DLTR), and DaVita HealthCare Partners Inc (NYSE:DVA) to gather more data points.
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In today’s marketplace there are a large number of gauges stock traders put to use to appraise publicly traded companies. A couple of the most innovative gauges are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the best picks of the best investment managers can outpace the S&P 500 by a significant margin (see the details here).
Keeping this in mind, let’s take a look at the recent action encompassing NetEase, Inc (ADR) (NASDAQ:NTES).
What does the smart money think about NetEase, Inc (ADR) (NASDAQ:NTES)?
At Q3’s end, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -28% from the previous quarter. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, William B. Gray’s Orbis Investment Management has the largest position in NetEase, Inc (ADR) (NASDAQ:NTES), worth close to $1.3753 billion, corresponding to 11.7% of its total 13F portfolio. Coming in second is Renaissance Technologies, led by Jim Simons, holding a $310.5 million position; 0.7% of its 13F portfolio is allocated to the company. Other peers with similar optimism comprise Rob Citrone’s Discovery Capital Management, Alex Sacerdote’s Whale Rock Capital Management and Dmitry Balyasny’s Balyasny Asset Management.
Due to the fact that NetEase, Inc (ADR) (NASDAQ:NTES) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there exists a select few money managers that decided to sell off their positions entirely in the third quarter. It’s worth mentioning that Daniel S. Och’s OZ Management cut the largest position of the 700 funds followed by Insider Monkey, valued at an estimated $164 million in stock, and Louis Bacon’s Moore Global Investments was right behind this move, as the fund dropped about $31.2 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 10 funds in the third quarter.
Let’s go over hedge fund activity in other stocks similar to NetEase, Inc (ADR) (NASDAQ:NTES). We will take a look at Endo International plc – Ordinary Shares (NASDAQ:ENDP), Dollar Tree, Inc. (NASDAQ:DLTR), DaVita HealthCare Partners Inc (NYSE:DVA), and Equinix Inc (NASDAQ:EQIX). This group of stocks’ market values are similar to NTES’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ENDP | 61 | 4133074 | -6 |
| DLTR | 52 | 3273014 | -8 |
| DVA | 39 | 4826358 | -5 |
| EQIX | 42 | 3237834 | 1 |
As you can see these stocks had an average of 48.5 hedge funds with bullish positions and the average amount invested in these stocks was $3868 million. That figure was $2385 million in NTES’s case. Endo International plc – Ordinary Shares (NASDAQ:ENDP) is the most popular stock in this table. On the other hand DaVita HealthCare Partners Inc (NYSE:DVA) is the least popular one with only 39 bullish hedge fund positions. Compared to these stocks NetEase, Inc (ADR) (NASDAQ:NTES) is even less popular than DVA. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
