Is NIO a good stock to buy according to hedge funds?

Hedge funds and large money managers usually invest by focusing on the long-term horizon, and therefore short-term declines or swellings on charts do not make them change their mind about a company. This time it may be different. The coronavirus pandemic has destroyed the high correlations between major industries and asset classes. We are now in a stock selection market, where the fundamentals of a stock have more of an effect on price than the general direction of the market. As a result, we see sudden and large changes in hedge fund positions, depending on the news flow. Let’s take a look at how hedge funds feel about NIO Limited (NYSE: NIO) to find out if there have been major changes in hedge fund views.

Is NIO a good stock to buy? NIO Limited Investors (NYSE: NIO) should pay attention to the growth of activity in the largest hedge funds in the world in recent times. NIO Limited (NYSE: NIO) was in 35 hedge fund portfolios at the end of the third quarter of 2020. The maximum share of this statistic is 30. This means that the bullish number of hedge fund positions in these shares is find out now at all times. There were 30 hedge funds in our database with NIO positions at the end of the second quarter. Our calculations also showed that NIO is not among the 30 most popular stocks among hedge funds (click for Q3 rankings and check out the video for a quick look at the top 5 stocks). Video: Watch our video on the top 5 most popular hedge funds.

The reputation of hedge funds as smart investors has been tarnished over the last decade, as their hedged returns have not been able to keep up with the uncovered returns of market indices. Our research was able to identify in advance a selected group of hedge funds that outperformed the S&P 500 ETFs by more than 66 percentage points since March 2017 (see details here). We also managed to identify in advance a selected group of hedge funds that would perform significantly in the market. We follow and share the list of these stocks from February 2017 and they lost 13% until November 17. Therefore, we believe that the sentiment of hedge funds is an extremely useful indicator that investors should pay attention to.

Lei Zhang Hillhouse Capital
Lei Zhang Hillhouse Capital

Lei Zhang of Hillhouse Capital Management

At Insider Monkey we do not leave any stone unturned when we look for the next excellent investment idea. For example, the House passed a bill that decriminalizes marijuana. So we’re checking this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to choose the best stocks with high capacity to buy. Even if we recommend positions in only a small part of the companies we analyze, we check as many stocks as possible. We read hedge fund investors’ letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. We will now analyze the recent action of hedge funds around NIO Limited (NYSE: NIO).

Do you think NIO hedge funds are a good stock to buy now?

At the end of the third quarter, a total of 35 of the hedge funds pursued by Insider Monkey had an increase in this share, a change of 17% compared to the previous quarter. The chart below shows the number of hedge funds with a bullish position in the NIO in the last 21 quarters. So, let’s find out which hedge funds were among the shareholders and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stock in NIO Limited (NYSE: NIO), which was worth $ 295.8 million at the end of the third quarter. In second place was DE Shaw, which accumulated shares worth $ 242.2 million. Partners LMR, Two Sigma Advisors and Millennium Management were also very passionate about stocks, becoming one of the company’s largest hedge fund holders. In terms of portfolio weights assigned to each position, Electron Capital Partners allocated the largest share to NIO Limited (NYSE: NIO), around 5.28% of its 13F portfolio. Jericho Capital Asset Management is also relatively highly equitable, allocating 4.3% of its 13F share portfolio to NIO.

Now, the main money managers led the herd of bulls. Two Sigma advisors, managed by John Overdeck and David Siegel, have established the largest position in NIO Limited (NYSE: NIO). Two Sigma advisors invested $ 122.2 million in the company at the end of the quarter. Lei Zhang’s Hillhouse Capital Management also made a $ 51.2 million investment in shares during the quarter. The following funds were also among the new NIO investors: Israel Englander’s Millennium Management, Larry Chen and Terry Zhang’s Tairen Capital and Robert Henry Lynch’s Aristeia Capital.

Let’s check the activity of hedge funds in other stocks – not necessarily in the same industry as NIO Limited (NYSE: NIO), but similarly valued. We’ll take a look at Microchip Technology Incorporated (NASDAQ: MCHP), AFLAC Incorporated (NYSE: AFL), Stanley Black & Decker, Inc. (NYSE: SWK), Fresenius Medical Care AG & Co. KGaA (NYSE: FMS), Fastenal Company (NASDAQ: FAST), McCormick & Company, Incorporated (NYSE: MKC) and Archer Daniels Midland Company (NYSE: ADM). All these stock market caps match the market cap of NIO.

[table] Ticker, number of HFs with positions, Total value of HF positions (x1000), Change of HF position MCHP, 35,629361,2 AFL, 34,479100,0 SWK, 38,786276,5 FMS, 9,14151,3 FAST, 38,700349,4 MKC, 37,315538,5 ADM, 26,673303, -2 on average, 31,514011,2,4 [/table]

View the table here if you have formatting issues.

As you can see, these shares had an average of 31 hedge funds with bullish positions, and the average amount invested in these shares was $ 514 million. This figure was $ 1401 million in the NIO case. Stanley Black & Decker, Inc. (NYSE: SWK) is the most popular stock from this table. On the other hand, Fresenius Medical Care AG & Co. KGaA (NYSE: FMS) is the least popular, with only 9 bullish hedge fund positions. NIO Limited (NYSE: NIO) is not the most popular stock in this group, but interest rates on hedge funds are still above average. Our overall hedge fund sentiment for the NIO is 84.8. Shares with a higher number of hedge fund positions than other stocks, as well as in relation to their historical range, receive a higher sentiment score. Our calculations showed that the most popular 20 shares of hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These shares gained 33.3% in 2020 to December 18 and continued to outperform the market by 16.4 percentage points. Hedge funds were also right about bets on NIOs, as shares returned 120.2% from the end of the third quarter (up to 12/18) and outperformed the market. Hedge funds have been rewarded for their relative alcoholism.

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

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