Is NIO A Good Stock To Buy According To Hedge Funds?

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards NIO Limited (NYSE:NIO) to find out whether there were any major changes in hedge funds’ views.

Is NIO a good stock to buy? NIO Limited (NYSE:NIO) investors should pay attention to an increase in activity from the world’s largest hedge funds of late. NIO Limited (NYSE:NIO) was in 35 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 30. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 30 hedge funds in our database with NIO positions at the end of the second quarter. Our calculations also showed that NIO isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Lei Zhang of Hillhouse Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now we’re going to take a gander at the recent hedge fund action surrounding NIO Limited (NYSE:NIO).

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

At the end of the third quarter, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NIO over the last 21 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in NIO Limited (NYSE:NIO), which was worth $295.8 million at the end of the third quarter. On the second spot was D E Shaw which amassed $242.2 million worth of shares. LMR Partners, Two Sigma Advisors, and Millennium 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 Electron Capital Partners allocated the biggest weight to NIO Limited (NYSE:NIO), around 5.28% of its 13F portfolio. Jericho Capital Asset Management is also relatively very bullish on the stock, earmarking 4.3 percent of its 13F equity portfolio to NIO.

Now, key money managers were leading the bulls’ herd. Two Sigma Advisors, managed by John Overdeck and David Siegel, established the biggest position in NIO Limited (NYSE:NIO). Two Sigma Advisors had $122.2 million invested in the company at the end of the quarter. Lei Zhang’s Hillhouse Capital Management also made a $51.2 million investment in the stock during the quarter. The following funds were also among the new NIO investors: Israel Englander’s Millennium Management, Larry Chen and Terry Zhang’s Tairen Capital, and Robert Henry Lynch’s Aristeia Capital.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as NIO Limited (NYSE:NIO) but similarly valued. We will take a look at Microchip Technology Incorporated (NASDAQ:MCHP), AFLAC Incorporated (NYSE:AFL), Stanley Black & Decker, Inc. (NYSE:SWK), Fresenius Medical Care AG & Co. KGaA (NYSE:FMS), Fastenal Company (NASDAQ:FAST), McCormick & Company, Incorporated (NYSE:MKC), and Archer Daniels Midland Company (NYSE:ADM). All of these stocks’ market caps match NIO’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 31 hedge funds with bullish positions and the average amount invested in these stocks was $514 million. That figure was $1401 million in NIO’s case. Stanley Black & Decker, Inc. (NYSE:SWK) is the most popular stock in this table. On the other hand Fresenius Medical Care AG & Co. KGaA (NYSE:FMS) is the least popular one with only 9 bullish hedge fund positions. NIO Limited (NYSE:NIO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NIO is 84.8. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on NIO as the stock returned 120.2% since the end of Q3 (through 12/18) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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