JD.Com Inc (ADR) (JD) Sinking on SEC Probe of Alibaba

JD.Com Inc (ADR) (NASDAQ:JD) is 3.6% in the red due to relative valuation. Because Alibaba Group Holding Ltd (BABA) shares are off by more than 5% today, some traders are selling JD.Com Inc (ADR) (NASDAQ:JD) on the basis that JD.com should be worth some percentage of Alibaba intrinsically. Alibaba shares are down today after it was revealed that the SEC is investigating the company over its accounting practices. The SEC is specifically investigating Alibaba’s consolidation practices relating to the data reported from the company’s Singles’ Day promotion. The probe could also be dampening investors’ enthusiasm for Chinese stocks in general today, which could also explain part of the selloff.

JD.Com Inc (ADR) (NASDAQ:JD) was in 73 hedge funds’ portfolios at the end of the first quarter of 2016. JD has experienced a decrease in enthusiasm from smart money of late. There were 78 hedge funds in our database with JD holdings at the end of the previous quarter. However, it should be noted that the 73 hedge funds long JD.Com on March 31 held an impressive 39.40% of the company’s shares, so they remain extremely bullish collectively. At the end of this article we will also compare JD to other stocks including Pioneer Natural Resources (NYSE:PXD), Hormel Foods Corporation (NYSE:HRL), and TE Connectivity Ltd. (NYSE:TEL) to get a better sense of its popularity.

We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Hillhouse Capital Management, managed by Lei Zhang, holds the biggest position in JD.Com Inc (ADR) (NASDAQ:JD). Hillhouse Capital Management has a $3.27 billion position in the stock, comprising 71.3% of its 13F portfolio. Sitting at the No. 2 spot is Tiger Global Management LLC, managed by Chase Coleman, which holds a $1.17 billion position; the fund has 16.8% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism contain William B. Gray’s Orbis Investment Management, Stephen Mandel’s Lone Pine Capital, and Philippe Laffont’s Coatue Management.

On the next page we’ll look at some funds that sold off positions in JD.Com during Q1, as well as compare the stock to a handful of others with similar market caps.