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Were Hedge Funds Right About Souring On NetEase, Inc (NTES)?

Is NetEase, Inc (NASDAQ:NTES) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before doing days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also have numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is NetEase, Inc (NASDAQ:NTES) a sound stock to buy now? The number of bullish hedge fund positions moved up by 1 in recent months but the overall trend in recent years is still negative. Our calculations also showed that NTES isn’t among the 30 most popular stocks among hedge funds. NTES was in 27 hedge funds’ portfolios at the end of December. There were 26 hedge funds in our database with NTES holdings at the end of the previous quarter.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Dmitry Balyasny

Let’s view the fresh hedge fund action encompassing NetEase, Inc (NASDAQ:NTES).

What have hedge funds been doing with NetEase, Inc (NASDAQ:NTES)?

At Q4’s end, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from one quarter earlier. On the other hand, there were a total of 22 hedge funds with a bullish position in NTES a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

NTES_mar2019

The largest stake in NetEase, Inc (NASDAQ:NTES) was held by Orbis Investment Management, which reported holding $2360.4 million worth of stock at the end of September. It was followed by Steadfast Capital Management with a $239.9 million position. Other investors bullish on the company included Fisher Asset Management, Alkeon Capital Management, and Citadel Investment Group.

With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. Maverick Capital, managed by Lee Ainslie, assembled the largest position in NetEase, Inc (NASDAQ:NTES). Maverick Capital had $55.8 million invested in the company at the end of the quarter. Josh Resnick’s Jericho Capital Asset Management also initiated a $47.8 million position during the quarter. The following funds were also among the new NTES investors: Ernest Chow and Jonathan Howe’s Sensato Capital Management, Dmitry Balyasny’s Balyasny Asset Management, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Let’s go over hedge fund activity in other stocks similar to NetEase, Inc (NASDAQ:NTES). We will take a look at Ross Stores, Inc. (NASDAQ:ROST), Constellation Brands, Inc. (NYSE:STZ), Ford Motor Company (NYSE:F), and JD.Com Inc (NASDAQ:JD). This group of stocks’ market caps are closest to NTES’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ROST 33 907243 2
STZ 62 4360416 1
F 33 977186 3
JD 34 2227256 2
Average 40.5 2118025 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.5 hedge funds with bullish positions and the average amount invested in these stocks was $2118 million. That figure was $3285 million in NTES’s case. Constellation Brands, Inc. (NYSE:STZ) is the most popular stock in this table. On the other hand Ross Stores, Inc. (NASDAQ:ROST) is the least popular one with only 33 bullish hedge fund positions. Compared to these stocks NetEase, Inc (NASDAQ:NTES) is even less popular than ROST. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Unfortunately NTES wasn’t in this group. Hedge funds that bet on NTES were disappointed as the stock returned 3.2% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 13 of these outperformed the market.

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

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