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Is NetEase, Inc (NTES) Going to Burn These Hedge Funds?

In this article you are going to find out whether hedge funds think NetEase, Inc (NASDAQ:NTES) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

NetEase, Inc (NASDAQ:NTES) investors should be aware of a decrease in support from the world’s most elite money managers lately. Our calculations also showed that NTES isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 51 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

AlphaOne Capital Partners' Returns, AUM and Holdings

Paul Hondros of AlphaOne Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to view the key hedge fund action surrounding NetEase, Inc (NASDAQ:NTES).

How are hedge funds trading NetEase, Inc (NASDAQ:NTES)?

At the end of the first quarter, a total of 39 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NTES over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in NetEase, Inc (NASDAQ:NTES) was held by Orbis Investment Management, which reported holding $2149.3 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $302.3 million position. Other investors bullish on the company included Steadfast Capital Management, Fisher Asset Management, and GLG Partners. In terms of the portfolio weights assigned to each position Orbis Investment Management allocated the biggest weight to NetEase, Inc (NASDAQ:NTES), around 20.46% of its 13F portfolio. Sensato Capital Management is also relatively very bullish on the stock, dishing out 10.51 percent of its 13F equity portfolio to NTES.

Since NetEase, Inc (NASDAQ:NTES) has faced declining sentiment from the smart money, it’s easy to see that there were a few funds that decided to sell off their entire stakes in the third quarter. Intriguingly, Hyder Ahmad’s Broad Peak Investment Holdings dumped the biggest stake of all the hedgies watched by Insider Monkey, comprising close to $42.3 million in stock. Louis Bacon’s fund, Moore Global Investments, also sold off its stock, about $15.3 million worth. These transactions are important to note, as total hedge fund interest fell by 5 funds in the third quarter.

Let’s check out hedge fund activity in other stocks similar to NetEase, Inc (NASDAQ:NTES). We will take a look at National Grid plc (NYSE:NGG), Zoom Video Communications, Inc. (NASDAQ:ZM), Walgreens Boots Alliance Inc (NASDAQ:WBA), and Equinor ASA (NYSE:EQNR). This group of stocks’ market caps are similar to NTES’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NGG 6 435493 0
ZM 47 2383850 19
WBA 45 461497 7
EQNR 11 281375 -3
Average 27.25 890554 5.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.25 hedge funds with bullish positions and the average amount invested in these stocks was $891 million. That figure was $3286 million in NTES’s case. Zoom Video Communications, Inc. (NASDAQ:ZM) is the most popular stock in this table. On the other hand National Grid plc (NYSE:NGG) is the least popular one with only 6 bullish hedge fund positions. NetEase, Inc (NASDAQ:NTES) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May but still beat the market by 13.2 percentage points. Hedge funds were also right about betting on NTES, though not to the same extent, as the stock returned 19.3% during the first two months of the second quarter and outperformed the market as well.

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