We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let's take a look at whether NIO Inc. (NYSE:NIO) is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending 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 employ 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 NIO Inc. (NYSE:NIO) ready to rally soon? Hedge funds are in a bullish mood. The number of bullish hedge fund bets increased by 3 recently. Our calculations also showed that NIO isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). NIO was in 16 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 13 hedge funds in our database with NIO holdings at the end of the previous quarter.
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 41 percentage points since March 2017 (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 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_337892" align="aligncenter" width="400"] Lei Zhang of Hillhouse Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind we're going to analyze the key hedge fund action regarding NIO Inc. (NYSE:NIO).
How have hedgies been trading NIO Inc. (NYSE:NIO)?
Heading into the first quarter of 2020, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 23% from one quarter earlier. On the other hand, there were a total of 13 hedge funds with a bullish position in NIO a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, D E Shaw held the most valuable stake in NIO Inc. (NYSE:NIO), which was worth $27 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $13.8 million worth of shares. Citadel Investment Group, Hound Partners, and HBK Investments were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Hound Partners allocated the biggest weight to NIO Inc. (NYSE:NIO), around 0.54% of its 13F portfolio. Caxton Associates LP is also relatively very bullish on the stock, earmarking 0.46 percent of its 13F equity portfolio to NIO.
With a general bullishness amongst the heavyweights, key money managers were leading the bulls' herd. Citadel Investment Group, managed by Ken Griffin, assembled the biggest position in NIO Inc. (NYSE:NIO). Citadel Investment Group had $13.8 million invested in the company at the end of the quarter. Donald Sussman's Paloma Partners also initiated a $3.6 million position during the quarter. The other funds with brand new NIO positions are Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors, Matthew Tewksbury's Stevens Capital Management, and Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners.
Let's now take a look at hedge fund activity in other stocks similar to NIO Inc. (NYSE:NIO). These stocks are Transocean Ltd (NYSE:RIG), Cabot Microelectronics Corporation (NASDAQ:CCMP), Stag Industrial Inc (NYSE:STAG), and Lazard Ltd (NYSE:LAZ). This group of stocks' market values are closest to NIO's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RIG,26,615765,-13 CCMP,24,382670,7 STAG,18,126164,-6 LAZ,14,701694,-1 Average,20.5,456573,-3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $457 million. That figure was $68 million in NIO's case. Transocean Ltd (NYSE:RIG) is the most popular stock in this table. On the other hand Lazard Ltd (NYSE:LAZ) is the least popular one with only 14 bullish hedge fund positions. NIO Inc. (NYSE:NIO) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately NIO wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NIO investors were disappointed as the stock returned -31.3% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1. 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.