Should I Buy NetEase, Inc (NTES)?

In this article we will take a look at whether hedge funds think NetEase, Inc (NASDAQ:NTES) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

NetEase, Inc (NASDAQ:NTES) investors should pay attention to an increase in hedge fund interest in recent months. NetEase, Inc (NASDAQ:NTES) was in 43 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 49. Our calculations also showed that NTES isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

In the eyes of most traders, hedge funds are viewed as underperforming, old financial vehicles of yesteryear. While there are over 8000 funds in operation at the moment, We hone in on the aristocrats of this group, around 850 funds. These money managers manage bulk of the smart money’s total asset base, and by shadowing their inimitable stock picks, Insider Monkey has deciphered various investment strategies that have historically outperformed the broader indices. Insider Monkey’s flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Also, our monthly newsletter’s portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website .

William Gray Orbis Investment Management

William Gray of Orbis Investment Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, artificial intelligence is one of the fastest-growing industries right now, so we are checking out stock pitches like this emerging AI stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind let’s check out the fresh hedge fund action regarding NetEase, Inc (NASDAQ:NTES).

Do Hedge Funds Think NTES Is A Good Stock To Buy Now?

At the end of June, a total of 43 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 34% from the previous quarter. By comparison, 38 hedge funds held shares or bullish call options in NTES a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

Among these funds, Orbis Investment Management held the most valuable stake in NetEase, Inc (NASDAQ:NTES), which was worth $2128.9 million at the end of the second quarter. On the second spot was GQG Partners which amassed $319.4 million worth of shares. Fisher Asset Management, Melvin Capital Management, and Renaissance Technologies 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 Orbis Investment Management allocated the biggest weight to NetEase, Inc (NASDAQ:NTES), around 13.46% of its 13F portfolio. Kerrisdale Capital is also relatively very bullish on the stock, setting aside 2.08 percent of its 13F equity portfolio to NTES.

Consequently, key hedge funds were breaking ground themselves. Jericho Capital Asset Management, managed by Josh Resnick, created the most outsized position in NetEase, Inc (NASDAQ:NTES). Jericho Capital Asset Management had $52.2 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also made a $35.8 million investment in the stock during the quarter. The other funds with new positions in the stock are James Parsons’s Junto Capital Management, Steve Cohen’s Point72 Asset Management, and Louis Bacon’s Moore Global Investments.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as NetEase, Inc (NASDAQ:NTES) but similarly valued. These stocks are CME Group Inc (NASDAQ:CME), Dell Technologies Inc. (NYSE:DELL), Duke Energy Corporation (NYSE:DUK), Canadian National Railway Company (NYSE:CNI), Truist Financial Corporation (NYSE:TFC), Activision Blizzard, Inc. (NASDAQ:ATVI), and CSX Corporation (NASDAQ:CSX). This group of stocks’ market caps match NTES’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CME 62 2649845 2
DELL 62 5601143 8
DUK 36 566143 2
CNI 40 5310284 4
TFC 39 1019267 3
ATVI 78 3651606 2
CSX 56 4223857 3
Average 53.3 3288878 3.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 53.3 hedge funds with bullish positions and the average amount invested in these stocks was $3289 million. That figure was $3721 million in NTES’s case. Activision Blizzard, Inc. (NASDAQ:ATVI) is the most popular stock in this table. On the other hand Duke Energy Corporation (NYSE:DUK) is the least popular one with only 36 bullish hedge fund positions. NetEase, Inc (NASDAQ:NTES) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NTES is 44.7. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 22.9% in 2021 through October 1st and surpassed the market again by 5.6 percentage points. Unfortunately NTES wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); NTES investors were disappointed as the stock returned -27.1% since the end of June (through 10/1) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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