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

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded JD.Com Inc (NASDAQ:JD) and determine whether the smart money was really smart about this stock.

Is JD.Com Inc (NASDAQ:JD) a buy right now? The best stock pickers were turning bullish in March. The number of long hedge fund positions inched up by 27 in recent months. Our calculations also showed that JD ranked 27th 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).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Gabriel Plotkin Melvin Capital Management

Gabriel Plotkin of Melvin Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a gander at the fresh hedge fund action regarding JD.Com Inc (NASDAQ:JD).

Hedge fund activity in JD.Com Inc (NASDAQ:JD)

At Q1’s end, a total of 90 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 43% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in JD over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Tiger Global Management LLC was the largest shareholder of JD.Com Inc (NASDAQ:JD), with a stake worth $2051.3 million reported as of the end of September. Trailing Tiger Global Management LLC was Viking Global, which amassed a stake valued at $763.8 million. D1 Capital Partners, Hillhouse Capital Management, and Coatue 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 33.31% of its 13F portfolio. Kadensa Capital is also relatively very bullish on the stock, setting aside 15.32 percent of its 13F equity portfolio to JD.

Now, key money managers were breaking ground themselves. Coatue Management, managed by Philippe Laffont, initiated the largest position in JD.Com Inc (NASDAQ:JD). Coatue Management had $395 million invested in the company at the end of the quarter. Gabriel Plotkin’s Melvin Capital Management also made a $174.2 million investment in the stock during the quarter. The following funds were also among the new JD investors: Brandon Haley’s Holocene Advisors, Alex Sacerdote’s Whale Rock Capital Management, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Let’s go over hedge fund activity in other stocks similar to JD.Com Inc (NASDAQ:JD). These stocks are Automatic Data Processing , Inc. (NASDAQ:ADP), Enbridge Inc (NYSE:ENB), Allergan plc (NYSE:AGN), and Intuitive Surgical, Inc. (NASDAQ:ISRG). This group of stocks’ market values match JD’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ADP 46 1444924 -5
ENB 25 297504 4
AGN 95 12598171 9
ISRG 50 964310 -1
Average 54 3826227 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 54 hedge funds with bullish positions and the average amount invested in these stocks was $3826 million. That figure was $7920 million in JD’s case. Allergan plc (NYSE:AGN) is the most popular stock in this table. On the other hand Enbridge Inc (NYSE:ENB) is the least popular one with only 25 bullish hedge fund positions. JD.Com Inc (NASDAQ:JD) is not the most popular stock in this group but hedge fund interest is still above 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 13.3% in 2020 through June 25th but still beat the market by 16.8 percentage points. Hedge funds were also right about betting on JD as the stock returned 49.4% in Q2 (through June 25th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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