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Is JD.Com Inc (JD) Going to Burn These Hedge Funds?

A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended June 28, so let’s proceed with the discussion of the hedge fund sentiment on JD.Com Inc (NASDAQ:JD).

Is JD.Com Inc (NASDAQ:JD) a bargain? Investors who are in the know are taking a bearish view. The number of long hedge fund positions were cut by 3 lately. Our calculations also showed that JD isn’t among the 30 most popular stocks among hedge funds.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

JD_oct2019

Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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 take a look at the fresh hedge fund action encompassing JD.Com Inc (NASDAQ:JD).

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

At Q2’s end, a total of 45 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the first quarter of 2019. On the other hand, there were a total of 41 hedge funds with a bullish position in JD a year ago. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

Daniel Sundheim D1 Capital

More specifically, Tiger Global Management LLC was the largest shareholder of JD.Com Inc (NASDAQ:JD), with a stake worth $1600.8 million reported as of the end of March. Trailing Tiger Global Management LLC was Viking Global, which amassed a stake valued at $963.9 million. D1 Capital Partners, Fisher Asset Management, and First Pacific Advisors LLC were also very fond of the stock, giving the stock large weights in their portfolios.

Since JD.Com Inc (NASDAQ:JD) has experienced a decline in interest from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of funds who sold off their entire stakes last quarter. Interestingly, Matt Sirovich and Jeremy Mindich’s Scopia Capital dumped the biggest investment of the “upper crust” of funds followed by Insider Monkey, valued at about $217.3 million in stock, and Josh Resnick’s Jericho Capital Asset Management was right behind this move, as the fund sold off about $100.5 million worth. These transactions are interesting, as total hedge fund interest dropped by 3 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to JD.Com Inc (NASDAQ:JD). We will take a look at Consolidated Edison, Inc. (NYSE:ED), Equity Residential (NYSE:EQR), AvalonBay Communities Inc (NYSE:AVB), and ONEOK, Inc. (NYSE:OKE). This group of stocks’ market values are closest to JD’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ED 26 1401907 3
EQR 23 223216 1
AVB 21 662423 -5
OKE 21 380798 7
Average 22.75 667086 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $667 million. That figure was $5157 million in JD’s case. Consolidated Edison, Inc. (NYSE:ED) is the most popular stock in this table. On the other hand AvalonBay Communities Inc (NYSE:AVB) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks JD.Com Inc (NASDAQ:JD) is more popular among hedge funds. 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 JD wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on JD were disappointed as the stock returned -6.9% 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 in Q3.

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

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