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How Did JD.Com Inc (JD) Compare Against Hedge Fund Darlings in 2019?

We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained more than 57% each. Hedge funds’ top 3 stock picks returned 44.6% this year and beat the S&P 500 ETFs by almost 14 percentage points. That’s a big deal. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Is JD.Com Inc (NASDAQ:JD) a buy right now? Investors who are in the know are betting on the stock. The number of long hedge fund bets inched up by 9 in recent months. Our calculations also showed that JD isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). JD was in 54 hedge funds’ portfolios at the end of the third quarter of 2019. There were 45 hedge funds in our database with JD holdings at the end of the previous quarter.

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

Chase Coleman Tiger Global Management

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now we’re going to view the new hedge fund action surrounding JD.Com Inc (NASDAQ:JD).

How have hedgies been trading JD.Com Inc (NASDAQ:JD)?

Heading into the fourth quarter of 2019, a total of 54 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 20% from the second quarter of 2019. On the other hand, there were a total of 32 hedge funds with a bullish position in JD a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

Is JD A Good Stock To Buy?

Among these funds, Tiger Global Management held the most valuable stake in JD.Com Inc (NASDAQ:JD), which was worth $1490.9 million at the end of the third quarter. On the second spot was Viking Global which amassed $759 million worth of shares. D1 Capital Partners, Hillhouse Capital Management, and Fisher Asset 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 28.01% of its 13F portfolio. Yiheng Capital is also relatively very bullish on the stock, dishing out 8.23 percent of its 13F equity portfolio to JD.

As industrywide interest jumped, specific money managers have been driving this bullishness. Melvin Capital Management, managed by Gabriel Plotkin, initiated the most outsized call position in JD.Com Inc (NASDAQ:JD). Melvin Capital Management had $56.4 million invested in the company at the end of the quarter. Gabriel Plotkin’s Melvin Capital Management also made a $56.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Matthew Knauer and Mina Faltas’s Nokota Management, Joe DiMenna’s ZWEIG DIMENNA PARTNERS, and Philippe Laffont’s Coatue Management.

Let’s go over hedge fund activity in other stocks similar to JD.Com Inc (NASDAQ:JD). These stocks are Emerson Electric Co. (NYSE:EMR), HCA Healthcare Inc (NYSE:HCA), Marriott International Inc (NYSE:MAR), and BB&T Corporation (NYSE:BBT). This group of stocks’ market valuations are closest to JD’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EMR 37 594019 5
HCA 55 2621149 4
MAR 37 2446310 10
BBT 26 370776 3
Average 38.75 1508064 5.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.75 hedge funds with bullish positions and the average amount invested in these stocks was $1508 million. That figure was $5279 million in JD’s case. HCA Healthcare Inc (NYSE:HCA) is the most popular stock in this table. On the other hand BB&T Corporation (NYSE:BBT) is the least popular one with only 26 bullish hedge fund positions. JD.Com Inc (NASDAQ:JD) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on JD as the stock returned 73.2% in 2019 (through December 23rd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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