Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to the smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in NIO Inc. (NYSE:NIO)? The smart money sentiment can provide an answer to this question.
Is NIO a good stock to buy now? NIO Inc. (NYSE:NIO) investors should pay attention to a decrease in support from the world’s most elite money managers in recent months. NIO Inc. (NYSE:NIO) was in 30 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 35. Our calculations also showed that NIO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).
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. Now let’s review the new hedge fund action regarding NIO Inc. (NYSE:NIO).
Tim Woolley of Polar Capital
Do Hedge Funds Think NIO Is A Good Stock To Buy Now?
At the end of September, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -12% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in NIO over the last 25 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, D E Shaw, managed by D. E. Shaw, holds the number one position in NIO Inc. (NYSE:NIO). D E Shaw has a $246.4 million position in the stock, comprising 0.2% of its 13F portfolio. On D E Shaw’s heels is Citadel Investment Group, managed by Ken Griffin, which holds a $201.5 million call position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other peers that hold long positions encompass Ken Griffin’s Citadel Investment Group, Israel Englander’s Millennium Management and Simon Sadler’s Segantii Capital. In terms of the portfolio weights assigned to each position Long Corridor Asset Management allocated the biggest weight to NIO Inc. (NYSE:NIO), around 17.73% of its 13F portfolio. Segantii Capital is also relatively very bullish on the stock, setting aside 4.12 percent of its 13F equity portfolio to NIO.
Judging by the fact that NIO Inc. (NYSE:NIO) has witnessed a decline in interest from hedge fund managers, we can see that there is a sect of hedge funds that slashed their positions entirely last quarter. At the top of the heap, John Overdeck and David Siegel’s Two Sigma Advisors dumped the largest position of all the hedgies watched by Insider Monkey, comprising an estimated $213 million in stock, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners was right behind this move, as the fund said goodbye to about $93.1 million worth. These transactions are important to note, as total hedge fund interest was cut by 4 funds last quarter.
Let’s also examine hedge fund activity in other stocks similar to NIO Inc. (NYSE:NIO). These stocks are FedEx Corporation (NYSE:FDX), América Móvil, S.A.B. de C.V. (NYSE:AMOV), Northrop Grumman Corporation (NYSE:NOC), NetEase, Inc (NASDAQ:NTES), Air Products & Chemicals, Inc. (NYSE:APD), Ford Motor Company (NYSE:F), and ING Groep N.V. (NYSE:ING). This group of stocks’ market valuations are closest to NIO’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FDX | 49 | 1682204 | -12 |
| AMOV | 1 | 300 | 0 |
| NOC | 29 | 910523 | -13 |
| NTES | 32 | 2326768 | -11 |
| APD | 32 | 528730 | -8 |
| F | 51 | 1642491 | -4 |
| ING | 8 | 693351 | -1 |
| Average | 28.9 | 1112052 | -7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.9 hedge funds with bullish positions and the average amount invested in these stocks was $1112 million. That figure was $1138 million in NIO’s case. Ford Motor Company (NYSE:F) is the most popular stock in this table. On the other hand América Móvil, S.A.B. de C.V. (NYSE:AMOV) is the least popular one with only 1 bullish hedge fund positions. NIO Inc. (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 55.7. 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 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 28.6% in 2021 through November 30th and still beat the market by 5.6 percentage points. Hedge funds were also right about betting on NIO as the stock returned 9.8% since the end of Q3 (through 11/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
