Should You Follow the Smart Money Into NetEase Inc (ADR) (NTES)?

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The S&P 500 Index gained 7.6% in the 12 month-period that ended November 21, while less than 49% of its stocks beat the benchmark. In contrast, the 30 most popular mid-cap stocks among the top hedge fund investors tracked by the Insider Monkey team returned 18% over the same period, which provides evidence that these money managers do have great stock picking abilities. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like NetEase Inc (ADR) (NASDAQ:NTES).

NetEase Inc (ADR) (NASDAQ:NTES) was in 39 hedge funds’ portfolios at the end of September. NTES shareholders have witnessed an increase in hedge fund sentiment of late. There were 27 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 Workday Inc (NYSE:WDAY), Credicorp Ltd. (USA) (NYSE:BAP), and Parker-Hannifin Corporation (NYSE:PH) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

Keeping this in mind, let’s analyze the new action encompassing NetEase Inc (ADR) (NASDAQ:NTES).

Hedge fund activity in NetEase Inc (ADR) (NASDAQ:NTES)

At Q3’s end, a total of 39 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 44% jump from the previous quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Orbis Investment Management, managed by William B. Gray, holds the number one position in NetEase Inc (ADR) (NASDAQ:NTES). Orbis Investment Management has a $1.32 billion position in the stock, comprising 9.2% of its 13F portfolio. The second largest stake is held by Jim Simons of Renaissance Technologies, with a $479.9 million position. Some other professional money managers that are bullish encompass Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Panayotis Takis Sparaggis’ Alkeon Capital Management and Yi Xin’s Ariose Capital.

As aggregate interest increased, specific money managers have been driving this bullishness. Millennium Management, managed by Israel Englander, established the largest position in NetEase Inc (ADR) (NASDAQ:NTES). Millennium Management had $56.1 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $27.1 million investment in the stock during the quarter. The other funds with brand new NTES positions are Bernard Selz’s Selz Capital, D E Shaw, and David Costen Haley’s HBK Investments.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as NetEase Inc (ADR) (NASDAQ:NTES) but similarly valued. These stocks are Workday Inc (NYSE:WDAY), Credicorp Ltd. (USA) (NYSE:BAP), Parker-Hannifin Corporation (NYSE:PH), and Entergy Corporation (NYSE:ETR). This group of stocks’ market valuations resemble NTES’s market valuation.

As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $1.02 billion. That figure was $2.98 million in NTES’s case. Workday Inc (NYSE:WDAY) is the most popular stock in this table. On the other hand Credicorp Ltd. (USA) (NYSE:BAP) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks NetEase Inc (ADR) (NASDAQ:NTES) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, and that ownership spiked last quarter, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

Disclosure: None