Here’s What Hedge Funds Think About NIO Inc. (NIO)

Nina Todic

Sat, Apr 20, 2019, 7:05 PM

You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund managers like Jeff Ubben, George Soros and Seth Klarman hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.

NIO Inc. (NYSE:NIO) was in 13 hedge funds' portfolios at the end of December. NIO investors should be aware of a decrease in activity from the world's largest hedge funds of late. There were 14 hedge funds in our database with NIO holdings at the end of the previous quarter. Our calculations also showed that NIO isn't among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Lone Pine Capital 2015 Q2 Investor Letter

Let's analyze the fresh hedge fund action encompassing NIO Inc. (NYSE:NIO).

Hedge fund activity in NIO Inc. (NYSE:NIO)

At the end of the fourth quarter, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from one quarter earlier. By comparison, 0 hedge funds held shares or bullish call options in NIO a year ago. With hedgies' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

The largest stake in NIO Inc. (NYSE:NIO) was held by Lone Pine Capital, which reported holding $20.4 million worth of stock at the end of September. It was followed by Masters Capital Management with a $12.7 million position. Other investors bullish on the company included Islet Management, Alyeska Investment Group, and Citadel Investment Group.

Since NIO Inc. (NYSE:NIO) has experienced bearish sentiment from hedge fund managers, it's safe to say that there is a sect of fund managers that elected to cut their positions entirely by the end of the third quarter. Intriguingly, Guy Shahar's DSAM Partners cut the biggest stake of the 700 funds monitored by Insider Monkey, totaling an estimated $13.9 million in stock. Scott Bessent's fund, Key Square Capital Management, also dropped its stock, about $7 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 1 funds by the end of the third quarter.

Let's check out hedge fund activity in other stocks similar to NIO Inc. (NYSE:NIO). These stocks are Guidewire Software Inc (NYSE:GWRE), Neurocrine Biosciences, Inc. (NASDAQ:NBIX), Bright Horizons Family Solutions Inc (NYSE:BFAM), and Ingredion Inc (NYSE:INGR). This group of stocks' market valuations match NIO's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GWRE,20,564802,-12 NBIX,37,781900,-2 BFAM,16,279164,0 INGR,21,235894,0 Average,23.5,465440,-3.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $465 million. That figure was $66 million in NIO's case. Neurocrine Biosciences, Inc. (NASDAQ:NBIX) is the most popular stock in this table. On the other hand Bright Horizons Family Solutions Inc (NYSE:BFAM) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks NIO Inc. (NYSE:NIO) is even less popular than BFAM. Considering that hedge funds aren't fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn't behind this stock. This isn't necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Unfortunately NIO wasn't in this group. Hedge funds that bet on NIO were disappointed as the stock lost 16.8% 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 12 of these outperformed the market.

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

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