Hedge Funds Are Dumping NIO Inc. (NIO)

The market has been volatile in the last few months as the Federal Reserve continued its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q2 and the beginning of Q3. In this article, we analyze what the smart money thinks of NIO Inc. (NYSE:NIO) and find out how it is affected by hedge funds’ moves.

NIO Inc. (NYSE:NIO) shareholders have witnessed a decrease in hedge fund interest lately. Our calculations also showed that NIO isn’t among the 30 most popular stocks among hedge funds (view the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Daniel Gold QVT Financial

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to view the recent hedge fund action encompassing NIO Inc. (NYSE:NIO).

What have hedge funds been doing with NIO Inc. (NYSE:NIO)?

At the end of the second quarter, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -33% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards NIO over the last 16 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).


The largest stake in NIO Inc. (NYSE:NIO) was held by Hillhouse Capital Management, which reported holding $106.9 million worth of stock at the end of March. It was followed by Segantii Capital with a $7.3 million position. Other investors bullish on the company included Arrowgrass Capital Partners, Aristeia Capital, and Alyeska Investment Group.

Due to the fact that NIO Inc. (NYSE:NIO) has experienced falling interest from the entirety of the hedge funds we track, logic holds that there were a few hedge funds who sold off their full holdings in the second quarter. Interestingly, D. E. Shaw’s D E Shaw said goodbye to the largest investment of all the hedgies tracked by Insider Monkey, valued at close to $12.8 million in stock, and Wang Chan’s Serenity Capital was right behind this move, as the fund cut about $12.7 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 7 funds in the second quarter.

Let’s check out hedge fund activity in other stocks similar to NIO Inc. (NYSE:NIO). We will take a look at Hamilton Lane Incorporated (NASDAQ:HLNE), Holly Energy Partners, L.P. (NYSE:HEP), Chemical Financial Corporation (NASDAQ:CHFC), and Coca-Cola Bottling Co. Consolidated (NASDAQ:COKE). All of these stocks’ market caps are similar to NIO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HLNE 6 56143 -4
HEP 1 2228 -3
CHFC 20 127114 2
COKE 11 26121 2
Average 9.5 52902 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $53 million. That figure was $147 million in NIO’s case. Chemical Financial Corporation (NASDAQ:CHFC) is the most popular stock in this table. On the other hand Holly Energy Partners, L.P. (NYSE:HEP) is the least popular one with only 1 bullish hedge fund positions. NIO Inc. (NYSE:NIO) is not the most popular stock in this group but hedge fund interest is still above average. 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately NIO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on NIO were disappointed as the stock returned -38.8% during the third quarter 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.

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