Were Hedge Funds Right About Piling Into JD.Com Inc (JD)?

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 823 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about JD.Com Inc (NASDAQ:JD).

JD.Com Inc (NASDAQ:JD) investors should pay attention to a decrease in hedge fund interest recently. JD.Com Inc (NASDAQ:JD) was in 87 hedge funds’ portfolios at the end of June. The all time high for this statistics is 90. There were 90 hedge funds in our database with JD positions at the end of the first quarter. Our calculations also showed that JD isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

To the average investor there are many signals investors employ to grade publicly traded companies. A duo of the best signals are hedge fund and insider trading activity. We have shown that, historically, those who follow the top picks of the top investment managers can outperform the broader indices by a very impressive amount (see the details here).

Chase Coleman of Tiger Global

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Now we’re going to check out the key hedge fund action encompassing JD.Com Inc (NASDAQ:JD).

How have hedgies been trading JD.Com Inc (NASDAQ:JD)?

At second quarter’s end, a total of 87 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the first quarter of 2020. By comparison, 45 hedge funds held shares or bullish call options in JD a year ago. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

More specifically, Tiger Global Management LLC was the largest shareholder of JD.Com Inc (NASDAQ:JD), with a stake worth $3108.3 million reported as of the end of September. Trailing Tiger Global Management LLC was D1 Capital Partners, which amassed a stake valued at $1216.6 million. Viking Global, Melvin Capital Management, and Hillhouse Capital Management 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 Kontiki Capital allocated the biggest weight to JD.Com Inc (NASDAQ:JD), around 30.32% of its 13F portfolio. Kadensa Capital is also relatively very bullish on the stock, designating 13.75 percent of its 13F equity portfolio to JD.

Judging by the fact that JD.Com Inc (NASDAQ:JD) has witnessed falling interest from hedge fund managers, logic holds that there lies a certain “tier” of funds that elected to cut their full holdings in the second quarter. Interestingly, Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC sold off the biggest investment of all the hedgies watched by Insider Monkey, worth about $131.6 million in stock. Scott Bessent’s fund, Key Square Capital Management, also sold off its stock, about $32.1 million worth. These transactions are important to note, as total hedge fund interest was cut by 3 funds in the second quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as JD.Com Inc (NASDAQ:JD) but similarly valued. We will take a look at Raytheon Technologies Corp (NYSE:RTX), 3M Company (NYSE:MMM), British American Tobacco plc (NYSE:BTI), Starbucks Corporation (NASDAQ:SBUX), CVS Health Corporation (NYSE:CVS), Sony Corporation (NYSE:SNE), and HDFC Bank Limited (NYSE:HDB). This group of stocks’ market valuations are similar to JD’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RTX 59 2951712 -3
MMM 42 1038241 -2
BTI 11 824986 1
SBUX 54 2683454 -14
CVS 65 1136206 -6
SNE 28 598881 0
HDB 42 1177218 4
Average 43 1487243 -2.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 43 hedge funds with bullish positions and the average amount invested in these stocks was $1487 million. That figure was $11211 million in JD’s case. CVS Health Corporation (NYSE:CVS) is the most popular stock in this table. On the other hand British American Tobacco plc (NYSE:BTI) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks JD.Com Inc (NASDAQ:JD) is more popular among hedge funds. Our overall hedge fund sentiment score for JD is 81. 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. 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 returned 29.2% in 2020 through October 16th but still managed to beat the market by 19.7 percentage points. Hedge funds were also right about betting on JD as the stock returned 35.5% since the end of June (through 10/16) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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