How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding NetEase, Inc (NASDAQ:NTES).
Is NTES a good stock to buy now? NetEase, Inc (NASDAQ:NTES) was in 45 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 49. NTES investors should pay attention to an increase in hedge fund interest lately. There were 38 hedge funds in our database with NTES holdings at the end of June. Our calculations also showed that NTES 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.
In today’s marketplace there are several gauges shareholders use to analyze their holdings. Some of the less utilized gauges are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the best picks of the top money managers can outclass their index-focused peers by a very impressive amount (see the details here).
Ken Fisher of Fisher Asset 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. Keeping this in mind we’re going to view the new hedge fund action encompassing NetEase, Inc (NASDAQ:NTES).
Do Hedge Funds Think NTES Is A Good Stock To Buy Now?
At the end of September, a total of 45 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 18% from the second quarter of 2020. On the other hand, there were a total of 32 hedge funds with a bullish position in NTES a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Orbis Investment Management was the largest shareholder of NetEase, Inc (NASDAQ:NTES), with a stake worth $1883.3 million reported as of the end of September. Trailing Orbis Investment Management was Renaissance Technologies, which amassed a stake valued at $536.6 million. GQG Partners, Fisher Asset Management, and Arrowstreet Capital 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 Orbis Investment Management allocated the biggest weight to NetEase, Inc (NASDAQ:NTES), around 14.82% of its 13F portfolio. Qtron Investments is also relatively very bullish on the stock, setting aside 1.67 percent of its 13F equity portfolio to NTES.
With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls’ herd. Millennium Management, managed by Israel Englander, established the most valuable position in NetEase, Inc (NASDAQ:NTES). Millennium Management had $30.6 million invested in the company at the end of the quarter. Larry Chen and Terry Zhang’s Tairen Capital also initiated a $9.1 million position during the quarter. The other funds with new positions in the stock are David Harding’s Winton Capital Management, D. E. Shaw’s D E Shaw, and Jinghua Yan’s TwinBeech Capital.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as NetEase, Inc (NASDAQ:NTES) but similarly valued. These stocks are VMware, Inc. (NYSE:VMW), CME Group Inc (NASDAQ:CME), Automatic Data Processing, Inc. (NASDAQ:ADP), Regeneron Pharmaceuticals Inc (NASDAQ:REGN), CSX Corporation (NASDAQ:CSX), Enbridge Inc (NYSE:ENB), and BP plc (NYSE:BP). All of these stocks’ market caps are similar to NTES’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VMW | 31 | 468712 | -11 |
| CME | 59 | 2577224 | -1 |
| ADP | 42 | 1927660 | -7 |
| REGN | 44 | 1404179 | -5 |
| CSX | 58 | 3253140 | 12 |
| ENB | 25 | 342708 | -3 |
| BP | 30 | 611924 | 3 |
| Average | 41.3 | 1512221 | -1.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 41.3 hedge funds with bullish positions and the average amount invested in these stocks was $1512 million. That figure was $3667 million in NTES’s case. CME Group Inc (NASDAQ:CME) is the most popular stock in this table. On the other hand Enbridge Inc (NYSE:ENB) is the least popular one with only 25 bullish hedge fund positions. NetEase, Inc (NASDAQ:NTES) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NTES is 67. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 32.9% in 2020 through December 8th and beat the market again by 16.2 percentage points. Unfortunately NTES wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on NTES were disappointed as the stock returned 1% since the end of September (through 12/8) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Follow Netease Com Inc (NASDAQ:NTES)
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Disclosure: None. This article was originally published at Insider Monkey.
