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Do Hedge Funds Love JD.Com Inc (JD)?

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 second 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 5 years and analyze what the smart money thinks of JD.Com Inc (NASDAQ:JD) based on that data and determine whether they were really smart about the stock.

Is JD.Com Inc (NASDAQ:JD) a great investment right now? The smart money was selling. The number of bullish hedge fund positions went down by 3 recently. JD.Com Inc (NASDAQ:JD) was in 87 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 90. Our calculations also showed that JD isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Third Point 2014 Q3 Investor Letter

Dan Loeb of Third Point

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind let’s take a gander at the fresh hedge fund action regarding JD.Com Inc (NASDAQ:JD).

Hedge fund activity in JD.Com Inc (NASDAQ:JD)

At the end of the second quarter, a total of 87 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in JD over the last 20 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Tiger Global Management LLC was the largest shareholder of JD.Com Inc (NASDAQ:JD), with a stake worth $3108.3 million reported as of the end of September. Trailing Tiger Global Management LLC was D1 Capital Partners, which amassed a stake valued at $1216.6 million. Viking Global, Melvin Capital Management, and Hillhouse Capital Management 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 Kontiki Capital allocated the biggest weight to JD.Com Inc (NASDAQ:JD), around 30.32% of its 13F portfolio. Kadensa Capital is also relatively very bullish on the stock, designating 13.75 percent of its 13F equity portfolio to JD.

Seeing as JD.Com Inc (NASDAQ:JD) has faced declining sentiment from the aggregate hedge fund industry, logic holds that there was a specific group of hedge funds that slashed their full holdings last quarter. Intriguingly, Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC sold off the largest investment of the “upper crust” of funds tracked by Insider Monkey, valued at about $131.6 million in stock. Scott Bessent’s fund, Key Square Capital Management, also sold off its stock, about $32.1 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 3 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to JD.Com Inc (NASDAQ:JD). We will take a look at Raytheon Technologies Corp (NYSE:RTX), 3M Company (NYSE:MMM), British American Tobacco plc (NYSE:BTI), Starbucks Corporation (NASDAQ:SBUX), CVS Health Corporation (NYSE:CVS), Sony Corporation (NYSE:SNE), and HDFC Bank Limited (NYSE:HDB). This group of stocks’ market caps are closest to JD’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RTX 59 2951712 -3
MMM 42 1038241 -2
BTI 11 824986 1
SBUX 54 2683454 -14
CVS 65 1136206 -6
SNE 28 598881 0
HDB 42 1177218 4
Average 43 1487243 -2.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 43 hedge funds with bullish positions and the average amount invested in these stocks was $1487 million. That figure was $11211 million in JD’s case. CVS Health Corporation (NYSE:CVS) is the most popular stock in this table. On the other hand British American Tobacco plc (NYSE:BTI) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks JD.Com Inc (NASDAQ:JD) is more popular among hedge funds. Our overall hedge fund sentiment score for JD is 81. 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 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 returned 28.2% in 2020 through August 24th but still managed to beat the market by 20.6 percentage points. Hedge funds were also right about betting on JD as the stock returned 26.6% since the end of June and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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