Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. 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 smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in NetEase, Inc (NASDAQ:NTES)? The smart money sentiment can provide an answer to this question.
Is NetEase, Inc (NASDAQ:NTES) ready to rally soon? Investors who are in the know are turning bullish. The number of long hedge fund positions advanced by 12 in recent months. Our calculations also showed that NTES isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
If you’d ask most investors, hedge funds are perceived as underperforming, old financial tools of yesteryear. While there are more than 8000 funds in operation at present, We hone in on the crème de la crème of this club, about 850 funds. It is estimated that this group of investors administer the lion’s share of the smart money’s total asset base, and by watching their inimitable equity investments, Insider Monkey has spotted several investment strategies that have historically beaten the market. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind we’re going to take a gander at the new hedge fund action encompassing NetEase, Inc (NASDAQ:NTES).
How have hedgies been trading NetEase, Inc (NASDAQ:NTES)?
Heading into the first quarter of 2020, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 38% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in NTES over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
More specifically, Orbis Investment Management was the largest shareholder of NetEase, Inc (NASDAQ:NTES), with a stake worth $2560.1 million reported as of the end of September. Trailing Orbis Investment Management was Renaissance Technologies, which amassed a stake valued at $344.9 million. Fisher Asset Management, Steadfast Capital Management, and GLG Partners 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 17.87% of its 13F portfolio. Sensato Capital Management is also relatively very bullish on the stock, earmarking 10.04 percent of its 13F equity portfolio to NTES.
With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls’ herd. Broad Peak Investment Holdings, managed by Hyder Ahmad, initiated the most valuable position in NetEase, Inc (NASDAQ:NTES). Broad Peak Investment Holdings had $42.3 million invested in the company at the end of the quarter. Richard Driehaus’s Driehaus Capital also initiated a $30.5 million position during the quarter. The following funds were also among the new NTES investors: Sahm Adrangi’s Kerrisdale Capital, Ken Heebner’s Capital Growth Management, and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s now review hedge fund activity in other stocks similar to NetEase, Inc (NASDAQ:NTES). These stocks are Mizuho Financial Group Inc. (NYSE:MFG), Eaton Corporation plc (NYSE:ETN), Marathon Petroleum Corp (NYSE:MPC), and Royal Bank of Scotland Group plc (NYSE:RBS). All of these stocks’ market caps resemble NTES’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MFG | 5 | 15118 | 1 |
| ETN | 42 | 1224237 | 8 |
| MPC | 69 | 2759103 | 1 |
| RBS | 5 | 37114 | 0 |
| Average | 30.25 | 1008893 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.25 hedge funds with bullish positions and the average amount invested in these stocks was $1009 million. That figure was $3818 million in NTES’s case. Marathon Petroleum Corp (NYSE:MPC) is the most popular stock in this table. On the other hand Mizuho Financial Group Inc. (NYSE:MFG) is the least popular one with only 5 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 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 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but still beat the market by 3.1 percentage points. Hedge funds were also right about betting on NTES as the stock returned 5.7% during the first quarter (through March 11th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
