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Did Hedge Funds Make The Right Call On Pinduoduo Inc. (PDD)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Pinduoduo Inc. (NASDAQ:PDD) based on that data and determine whether they were really smart about the stock.

Pinduoduo Inc. (NASDAQ:PDD) has seen a decrease in enthusiasm from smart money in recent months. Our calculations also showed that PDD isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

At the moment there are several methods stock traders can use to appraise publicly traded companies. A duo of the less utilized methods are hedge fund and insider trading activity. Our experts have shown that, historically, those who follow the top picks of the best money managers can trounce the market by a significant margin (see the details here).

Ken Fisher FISHER ASSET MANAGEMENT

Ken Fisher of Fisher Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a peek at the fresh hedge fund action surrounding Pinduoduo Inc. (NASDAQ:PDD).

How are hedge funds trading Pinduoduo Inc. (NASDAQ:PDD)?

Heading into the second quarter of 2020, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the previous quarter. On the other hand, there were a total of 32 hedge funds with a bullish position in PDD a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is PDD A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Lei Zhang’s Hillhouse Capital Management has the largest position in Pinduoduo Inc. (NASDAQ:PDD), worth close to $314.5 million, amounting to 4.2% of its total 13F portfolio. On Hillhouse Capital Management’s heels is Altimeter Capital Management, led by Brad Gerstner, holding a $313.1 million position; 9.4% of its 13F portfolio is allocated to the stock. Remaining peers with similar optimism include  Renaissance Technologies, Chase Coleman’s Tiger Global Management LLC and Ken Fisher’s Fisher Asset Management. In terms of the portfolio weights assigned to each position Altimeter Capital Management allocated the biggest weight to Pinduoduo Inc. (NASDAQ:PDD), around 9.39% of its 13F portfolio. Hillhouse Capital Management is also relatively very bullish on the stock, earmarking 4.24 percent of its 13F equity portfolio to PDD.

Because Pinduoduo Inc. (NASDAQ:PDD) has witnessed a decline in interest from the entirety of the hedge funds we track, we can see that there were a few hedgies that elected to cut their full holdings by the end of the first quarter. Intriguingly, Fang Zheng’s Keywise Capital Management cut the largest position of the 750 funds followed by Insider Monkey, comprising an estimated $38.5 million in stock, and Philippe Laffont’s Coatue Management was right behind this move, as the fund dropped about $28.5 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 4 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Pinduoduo Inc. (NASDAQ:PDD) but similarly valued. These stocks are TC Energy Corporation (NYSE:TRP), Humana Inc (NYSE:HUM), Truist Financial Corporation (NYSE:TFC), and Relx PLC (NYSE:RELX). All of these stocks’ market caps are similar to PDD’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TRP 24 182598 2
HUM 70 4246626 -5
TFC 34 551498 -1
RELX 5 97388 -2
Average 33.25 1269528 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.25 hedge funds with bullish positions and the average amount invested in these stocks was $1270 million. That figure was $1672 million in PDD’s case. Humana Inc (NYSE:HUM) is the most popular stock in this table. On the other hand Relx PLC (NYSE:RELX) is the least popular one with only 5 bullish hedge fund positions. Pinduoduo Inc. (NASDAQ:PDD) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on PDD as the stock returned 138.2% during the second quarter and outperformed the market by an even larger margin.

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