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Pinduoduo Inc. (PDD): Hedge Funds Taking Some Chips Off The Table

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Pinduoduo Inc. (NASDAQ:PDD).

Is Pinduoduo Inc. (NASDAQ:PDD) a sound investment right now? Money managers are taking a bearish view. The number of long hedge fund bets retreated by 4 in recent months. Our calculations also showed that PDD 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). PDD was in 28 hedge funds’ portfolios at the end of March. There were 32 hedge funds in our database with PDD positions at the end of the previous quarter.

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 58 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.

Daniel Sundheim D1 Capital

Daniel Sundheim of D1 Capital Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one as well as this tiny lithium play. 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 go over the new hedge fund action surrounding Pinduoduo Inc. (NASDAQ:PDD).

What does smart money think about Pinduoduo Inc. (NASDAQ:PDD)?

At Q1’s end, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from one quarter earlier. By comparison, 32 hedge funds held shares or bullish call options in PDD a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Lei Zhang’s Hillhouse Capital Management has the biggest position in Pinduoduo Inc. (NASDAQ:PDD), worth close to $314.5 million, corresponding to 4.2% of its total 13F portfolio. Sitting at the No. 2 spot is Altimeter Capital Management, led by Brad Gerstner, holding a $313.1 million position; 9.4% of its 13F portfolio is allocated to the company. Other professional money that are bullish comprise Renaissance Technologies, Chase Coleman’s Tiger Global Management LLC and Ken Fisher’s Fisher Asset Management. In terms of the portfolio weights assigned to each position Altimeter Capital Management allocated the biggest weight to Pinduoduo Inc. (NASDAQ:PDD), around 9.39% of its 13F portfolio. Hillhouse Capital Management is also relatively very bullish on the stock, designating 4.24 percent of its 13F equity portfolio to PDD.

Due to the fact that Pinduoduo Inc. (NASDAQ:PDD) has faced bearish sentiment from hedge fund managers, logic holds that there were a few hedge funds who were dropping their full holdings by the end of the first quarter. At the top of the heap, Fang Zheng’s Keywise Capital Management cut the biggest investment of the “upper crust” of funds watched by Insider Monkey, worth an estimated $38.5 million in stock. Philippe Laffont’s fund, Coatue Management, also cut its stock, about $28.5 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 4 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Pinduoduo Inc. (NASDAQ:PDD) but similarly valued. We will take a look at TC Energy Corporation (NYSE:TRP), Humana Inc (NYSE:HUM), Truist Financial Corporation (NYSE:TFC), and Relx PLC (NYSE:RELX). This group of stocks’ market values are closest to PDD’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TRP 24 182598 2
HUM 70 4246626 -5
TFC 34 551498 -1
RELX 5 97388 -2
Average 33.25 1269528 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.25 hedge funds with bullish positions and the average amount invested in these stocks was $1270 million. That figure was $1672 million in PDD’s case. Humana Inc (NYSE:HUM) is the most popular stock in this table. On the other hand Relx PLC (NYSE:RELX) is the least popular one with only 5 bullish hedge fund positions. Pinduoduo Inc. (NASDAQ:PDD) is not the least popular stock in this group but hedge fund interest is still below 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 and still beat the market by 13.2 percentage points. A small number of hedge funds were also right about betting on PDD as the stock returned 85.6% during the second quarter and outperformed the market by an even larger margin.

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