We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Pinduoduo Inc. (NASDAQ:PDD) and determine whether hedge funds skillfully traded this stock.
Pinduoduo Inc. (NASDAQ:PDD) investors should be aware of an increase in support from the world's most elite money managers of late. Pinduoduo Inc. (NASDAQ:PDD) was in 30 hedge funds' portfolios at the end of June. The all time high for this statistics is 32. There were 28 hedge funds in our database with PDD holdings at the end of March. Our calculations also showed that PDD 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.
According to most stock holders, hedge funds are viewed as underperforming, outdated financial tools of years past. While there are more than 8000 funds in operation at the moment, Our researchers choose to focus on the elite of this group, about 850 funds. Most estimates calculate that this group of people control most of the hedge fund industry's total asset base, and by shadowing their finest equity investments, Insider Monkey has identified several investment strategies that have historically surpassed the broader indices. Insider Monkey's flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
Chase Coleman of Tiger Global
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. With all of this in mind we're going to review the key hedge fund action regarding Pinduoduo Inc. (NASDAQ:PDD).
What have hedge funds been doing with Pinduoduo Inc. (NASDAQ:PDD)?
At the end of the second quarter, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from the previous quarter. On the other hand, there were a total of 29 hedge funds with a bullish position in PDD a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Renaissance Technologies, founded by Jim Simons, holds the largest position in Pinduoduo Inc. (NASDAQ:PDD). Renaissance Technologies has a $957.2 million position in the stock, comprising 0.8% of its 13F portfolio. Coming in second is Hillhouse Capital Management, led by Lei Zhang, holding a $846.7 million position; the fund has 7.7% of its 13F portfolio invested in the stock. Remaining peers with similar optimism consist of Brad Gerstner's Altimeter Capital Management, Chase Coleman's Tiger Global Management LLC and Ken Fisher's Fisher Asset Management. In terms of the portfolio weights assigned to each position Altimeter Capital Management allocated the biggest weight to Pinduoduo Inc. (NASDAQ:PDD), around 15.78% of its 13F portfolio. Voleon Capital is also relatively very bullish on the stock, setting aside 9 percent of its 13F equity portfolio to PDD.
As aggregate interest increased, specific money managers were leading the bulls' herd. Think Investments, managed by Shashin Shah, assembled the biggest position in Pinduoduo Inc. (NASDAQ:PDD). Think Investments had $30.8 million invested in the company at the end of the quarter. Run Ye, Junji Takegami and Hoyon Hwang's Tiger Pacific Capital also made a $30 million investment in the stock during the quarter. The other funds with brand new PDD positions are Nitin Saigal and Dan Jacobs's Kora Management, Ken Griffin's Citadel Investment Group, and Michael Kharitonov and Jon David McAuliffe's Voleon Capital.
Let's check out hedge fund activity in other stocks similar to Pinduoduo Inc. (NASDAQ:PDD). We will take a look at QUALCOMM, Incorporated (NASDAQ:QCOM), Lockheed Martin Corporation (NYSE:LMT), GlaxoSmithKline plc (NYSE:GSK), Lowe's Companies, Inc. (NYSE:LOW), Honeywell International Inc. (NYSE:HON), TOTAL SE (NYSE:TOT), and Gilead Sciences, Inc. (NASDAQ:GILD). This group of stocks' market values are closest to PDD's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position QCOM,74,2202796,14 LMT,53,1553657,-2 GSK,28,2068711,1 LOW,89,6589304,18 HON,50,1447569,6 TOT,19,861496,7 GILD,68,2286230,-8 Average,54.4,2429966,5.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 54.4 hedge funds with bullish positions and the average amount invested in these stocks was $2430 million. That figure was $4150 million in PDD's case. Lowe's Companies, Inc. (NYSE:LOW) is the most popular stock in this table. On the other hand TOTAL SE (NYSE:TOT) is the least popular one with only 19 bullish hedge fund positions. Pinduoduo Inc. (NASDAQ:PDD) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PDD is 43. 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 negative signal and 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 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23.8% in 2020 through September 14th and surpassed the market by 17.6 percentage points. Unfortunately PDD wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); PDD investors were disappointed as the stock returned -0.7% since Q2 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 most of these stocks already outperformed the market in 2020.
Get real-time email alerts: Follow Pinduoduo Inc. (NASDAQ:PDD)
Disclosure: None. This article was originally published at Insider Monkey.