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 Pinduoduo Inc. (NASDAQ:PDD)? The smart money sentiment can provide an answer to this question.
Pinduoduo Inc. (NASDAQ:PDD) shareholders have witnessed an increase in activity from the world’s largest hedge funds of late. Our calculations also showed that PDD 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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. Now we’re going to go over the recent hedge fund action encompassing Pinduoduo Inc. (NASDAQ:PDD).
Hedge fund activity in Pinduoduo Inc. (NASDAQ:PDD)
At Q4’s end, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PDD over the last 18 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, Hillhouse Capital Management was the largest shareholder of Pinduoduo Inc. (NASDAQ:PDD), with a stake worth $330.1 million reported as of the end of September. Trailing Hillhouse Capital Management was Altimeter Capital Management, which amassed a stake valued at $328.7 million. Renaissance Technologies, Tiger Global Management LLC, and SRS Investment 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 Keywise Capital Management allocated the biggest weight to Pinduoduo Inc. (NASDAQ:PDD), around 12.78% of its 13F portfolio. EastBay Asset Management is also relatively very bullish on the stock, designating 10.83 percent of its 13F equity portfolio to PDD.
As industrywide interest jumped, key money managers have jumped into Pinduoduo Inc. (NASDAQ:PDD) headfirst. Light Street Capital, managed by Glen Kacher, established the most outsized position in Pinduoduo Inc. (NASDAQ:PDD). Light Street Capital had $14.7 million invested in the company at the end of the quarter. Leung Chi Kit’s Kadensa Capital also made a $8.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Francis Cueto’s Asturias Capital, Campbell Wilson’s Old Well Partners, and Andrew Dalrymple and Barry McCorkell’s Aubrey Capital Management.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Pinduoduo Inc. (NASDAQ:PDD) but similarly valued. These stocks are Koninklijke Philips NV (NYSE:PHG), Baidu, Inc. (NASDAQ:BIDU), Analog Devices, Inc. (NASDAQ:ADI), and Infosys Limited (NYSE:INFY). This group of stocks’ market caps resemble PDD’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.25 hedge funds with bullish positions and the average amount invested in these stocks was $1748 million. That figure was $1682 million in PDD’s case. Baidu, Inc. (NASDAQ:BIDU) is the most popular stock in this table. On the other hand Koninklijke Philips NV (NYSE:PHG) is the least popular one with only 9 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 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. A small number of hedge funds were also right about betting on PDD as the stock returned -7.3% during the same time period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.