Is NetEase (NTES) Stock A Buy or Sell?

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In this article you are going to find out whether hedge funds think NetEase, Inc (NASDAQ:NTES) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is NTES stock a buy or sell? NetEase, Inc (NASDAQ:NTES) was in 38 hedge funds’ portfolios at the end of December. The all time high for this statistic is 49. NTES investors should be aware of a decrease in support from the world’s most elite money managers lately. There were 45 hedge funds in our database with NTES positions at the end of the third quarter. Our calculations also showed that NTES isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here).

Dmitry Balyasny of Balyasny Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now we’re going to view the new hedge fund action surrounding NetEase, Inc (NASDAQ:NTES).

Do Hedge Funds Think NTES Is A Good Stock To Buy Now?

At fourth quarter’s end, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -16% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards NTES over the last 22 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

The largest stake in NetEase, Inc (NASDAQ:NTES) was held by Orbis Investment Management, which reported holding $1948.9 million worth of stock at the end of December. It was followed by Renaissance Technologies with a $377.3 million position. Other investors bullish on the company included GQG Partners, Fisher Asset Management, and Steadfast Capital Management. In terms of the portfolio weights assigned to each position Orbis Investment Management allocated the biggest weight to NetEase, Inc (NASDAQ:NTES), around 14.12% of its 13F portfolio. Infini Capital is also relatively very bullish on the stock, designating 5.84 percent of its 13F equity portfolio to NTES.

Judging by the fact that NetEase, Inc (NASDAQ:NTES) has faced falling interest from the smart money, logic holds that there is a sect of hedge funds that slashed their entire stakes in the fourth quarter. Interestingly, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners sold off the biggest stake of the 750 funds followed by Insider Monkey, worth close to $11.5 million in stock, and Larry Chen and Terry Zhang’s Tairen Capital was right behind this move, as the fund said goodbye to about $9.1 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 7 funds in the fourth quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as NetEase, Inc (NASDAQ:NTES) but similarly valued. These stocks are The Southern Company (NYSE:SO), Enbridge Inc (NYSE:ENB), Intercontinental Exchange Inc (NYSE:ICE), Truist Financial Corporation (NYSE:TFC), Illinois Tool Works Inc. (NYSE:ITW), Global Payments Inc (NYSE:GPN), and Equinix, Inc. (REIT) (NASDAQ:EQIX). All of these 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
SO 32 400160 7
ENB 28 181170 3
ICE 53 3273294 -11
TFC 40 526377 11
ITW 40 704116 1
GPN 55 5554643 -2
EQIX 42 2001101 0
Average 41.4 1805837 1.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 41.4 hedge funds with bullish positions and the average amount invested in these stocks was $1806 million. That figure was $3468 million in NTES’s case. Global Payments Inc (NYSE:GPN) is the most popular stock in this table. On the other hand Enbridge Inc (NYSE:ENB) is the least popular one with only 28 bullish hedge fund positions. NetEase, Inc (NASDAQ:NTES) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NTES is 39.8. 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. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and still beat the market by 0.8 percentage points. A small number of hedge funds were also right about betting on NTES as the stock returned 14% since the end of the fourth quarter (through 3/19) and outperformed the market by an even larger margin.

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