How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Dada Nexus Limited (NASDAQ:DADA).
Is DADA a good stock to buy now? Dada Nexus Limited (NASDAQ:DADA) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 17 hedge funds’ portfolios at the end of September. Our calculations also showed that DADA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Duck Creek Technologies, Inc. (NASDAQ:DCT), American Financial Group, Inc. (NYSE:AFG), and Ares Capital Corporation (NASDAQ:ARCC) to gather more data points.
Video: 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 66 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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to check out the latest hedge fund action encompassing Dada Nexus Limited (NASDAQ:DADA).
Do Hedge Funds Think DADA Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards DADA over the last 21 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
More specifically, Kylin Management was the largest shareholder of Dada Nexus Limited (NASDAQ:DADA), with a stake worth $25.1 million reported as of the end of September. Trailing Kylin Management was Rokos Capital Management, which amassed a stake valued at $23.6 million. D1 Capital Partners, Hunt Lane Capital, and Aubrey 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 Kylin Management allocated the biggest weight to Dada Nexus Limited (NASDAQ:DADA), around 8.83% of its 13F portfolio. Aubrey Capital Management is also relatively very bullish on the stock, dishing out 3.25 percent of its 13F equity portfolio to DADA.
Due to the fact that Dada Nexus Limited (NASDAQ:DADA) has faced declining sentiment from the entirety of the hedge funds we track, we can see that there exists a select few hedgies that decided to sell off their entire stakes heading into Q4. At the top of the heap, David Costen Haley’s HBK Investments said goodbye to the biggest position of the 750 funds monitored by Insider Monkey, valued at about $1.7 million in stock. Karthik Sarma’s fund, SRS Investment Management, also said goodbye to its stock, about $0.9 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Dada Nexus Limited (NASDAQ:DADA) but similarly valued. These stocks are Duck Creek Technologies, Inc. (NASDAQ:DCT), American Financial Group, Inc. (NYSE:AFG), Ares Capital Corporation (NASDAQ:ARCC), RealPage, Inc. (NASDAQ:RP), CRISPR Therapeutics AG (NASDAQ:CRSP), Donaldson Company, Inc. (NYSE:DCI), and PLDT Inc. (NYSE:PHI). This group of stocks’ market caps match DADA’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 24.7 hedge funds with bullish positions and the average amount invested in these stocks was $319 million. That figure was $113 million in DADA’s case. RealPage, Inc. (NASDAQ:RP) is the most popular stock in this table. On the other hand PLDT Inc. (NYSE:PHI) is the least popular one with only 8 bullish hedge fund positions. Dada Nexus Limited (NASDAQ:DADA) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for DADA is 49.5. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on DADA as the stock returned 60.9% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.