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Were Hedge Funds Right About Piling Into NetEase, Inc (NTES)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 700 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their June 28 holdings, data that is available nowhere else. Should you consider NetEase, Inc (NASDAQ:NTES) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.

Is NetEase, Inc (NASDAQ:NTES) worth your attention right now? Investors who are in the know are buying. The number of long hedge fund positions advanced by 4 in recent months. Our calculations also showed that NTES isn’t among the 30 most popular stocks among hedge funds.

In the eyes of most investors, hedge funds are perceived as unimportant, old investment tools of years past. While there are greater than 8000 funds with their doors open today, We choose to focus on the moguls of this club, around 750 funds. These money managers oversee the majority of the hedge fund industry’s total capital, and by keeping an eye on their unrivaled investments, Insider Monkey has identified a few investment strategies that have historically exceeded the broader indices. Insider Monkey’s flagship hedge fund strategy outpaced the S&P 500 index by around 5 percentage points per year since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .

COATUE MANAGEMENT

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a look at the fresh hedge fund action regarding NetEase, Inc (NASDAQ:NTES).

How have hedgies been trading NetEase, Inc (NASDAQ:NTES)?

Heading into the third quarter of 2019, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from one quarter earlier. On the other hand, there were a total of 24 hedge funds with a bullish position in NTES a year ago. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

No of Hedge Funds with NTES Positions

Among these funds, Orbis Investment Management held the most valuable stake in NetEase, Inc (NASDAQ:NTES), which was worth $2647.4 million at the end of the second quarter. On the second spot was Steadfast Capital Management which amassed $286 million worth of shares. Moreover, Fisher Asset Management, Coatue Management, and D E Shaw were also bullish on NetEase, Inc (NASDAQ:NTES), allocating a large percentage of their portfolios to this stock.

As industrywide interest jumped, key money managers have jumped into NetEase, Inc (NASDAQ:NTES) headfirst. Coatue Management, managed by Philippe Laffont, established the most valuable position in NetEase, Inc (NASDAQ:NTES). Coatue Management had $209.5 million invested in the company at the end of the quarter. Renaissance Technologies also made a $31.4 million investment in the stock during the quarter. The other funds with brand new NTES positions are Matthew Hulsizer’s PEAK6 Capital Management, John Overdeck and David Siegel’s Two Sigma Advisors, and Noam Gottesman’s GLG Partners.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as NetEase, Inc (NASDAQ:NTES) but similarly valued. We will take a look at Melco Resorts & Entertainment Limited (NASDAQ:MLCO), The Williams Companies, Inc. (NYSE:WMB), Welltower Inc. (NYSE:WELL), and Yum! Brands, Inc. (NYSE:YUM). This group of stocks’ market valuations are closest to NTES’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MLCO 22 494344 0
WMB 34 1075157 2
WELL 17 558316 -6
YUM 30 988108 -2
Average 25.75 778981 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $779 million. That figure was $3765 million in NTES’s case. The Williams Companies, Inc. (NYSE:WMB) is the most popular stock in this table. On the other hand Welltower Inc. (NYSE:WELL) is the least popular one with only 17 bullish hedge fund positions. NetEase, Inc (NASDAQ:NTES) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks (see the video below) among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on NTES, though not to the same extent, as the stock returned 4.5% during the third quarter and outperformed the market as well.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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