Was The Smart Money Right About Piling Into Pinduoduo Inc. (PDD)?

In this article we will take a look at whether hedge funds think Pinduoduo Inc. (NASDAQ:PDD) 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.

Pinduoduo Inc. (NASDAQ:PDD) shareholders have witnessed an increase in hedge fund sentiment lately. Pinduoduo Inc. (NASDAQ:PDD) was in 54 hedge funds’ portfolios at the end of December. The all time high for this statistic was previously 34. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that PDD isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. 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 124 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.


James Dinan of York Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell 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. With all of this in mind let’s take a peek at the latest hedge fund action surrounding Pinduoduo Inc. (NASDAQ:PDD).

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

Heading into the first quarter of 2021, a total of 54 of the hedge funds tracked by Insider Monkey were long this stock, a change of 59% from the third quarter of 2020. By comparison, 32 hedge funds held shares or bullish call options in PDD a year ago. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Chase Coleman’s Tiger Global Management LLC has the biggest position in Pinduoduo Inc. (NASDAQ:PDD), worth close to $2.4968 billion, accounting for 6.4% of its total 13F portfolio. On Tiger Global Management LLC’s heels is Lei Zhang of Hillhouse Capital Management, with a $1.8176 billion position; the fund has 14.5% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism contain Brad Gerstner’s Altimeter Capital Management, Renaissance Technologies and Ken Fisher’s Fisher Asset Management. In terms of the portfolio weights assigned to each position Panview Capital allocated the biggest weight to Pinduoduo Inc. (NASDAQ:PDD), around 38.18% of its 13F portfolio. Tairen Capital is also relatively very bullish on the stock, designating 33.6 percent of its 13F equity portfolio to PDD.

With a general bullishness amongst the heavyweights, key money managers have jumped into Pinduoduo Inc. (NASDAQ:PDD) headfirst. LMR Partners, managed by Ben Levine, Andrew Manuel and Stefan Renold, created the most valuable position in Pinduoduo Inc. (NASDAQ:PDD). LMR Partners had $258.4 million invested in the company at the end of the quarter. Alex Sacerdote’s Whale Rock Capital Management also initiated a $128 million position during the quarter. The other funds with brand new PDD positions are Xiaomeng Tong’s Boyu Capital, James Dinan’s York Capital Management, and Ryan Thall’s Panview Capital.

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 Toyota Motor Corporation (NYSE:TM), Novartis AG (NYSE:NVS), Merck & Co., Inc. (NYSE:MRK), ASML Holding N.V. (NASDAQ:ASML), PepsiCo, Inc. (NASDAQ:PEP), AT&T Inc. (NYSE:T), and Pfizer Inc. (NYSE:PFE). This group of stocks’ market values match PDD’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TM 11 797163 -1
NVS 23 1680463 -2
MRK 82 7171072 2
ASML 30 2976227 7
PEP 56 4288005 4
T 58 1045081 7
PFE 63 1848417 -3
Average 46.1 2829490 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 46.1 hedge funds with bullish positions and the average amount invested in these stocks was $2829 million. That figure was $10528 million in PDD’s case. Merck & Co., Inc. (NYSE:MRK) is the most popular stock in this table. On the other hand Toyota Motor Corporation (NYSE:TM) is the least popular one with only 11 bullish hedge fund positions. Pinduoduo Inc. (NASDAQ:PDD) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PDD is 70.3. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and beat the market again by 1.6 percentage points. Unfortunately PDD wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on PDD were disappointed as the stock returned -24.6% since the end of December (through 4/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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