Hedge Funds Are Starting To Come Back To Li Auto Inc. (LI)

·6 min read

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the second quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 6 years and analyze what the smart money thinks of Li Auto Inc. (NASDAQ:LI) based on that data.

Is Li Auto Inc. (NASDAQ:LI) a buy right now? Prominent investors were getting more optimistic. The number of long hedge fund bets moved up by 2 in recent months. Li Auto Inc. (NASDAQ:LI) was in 20 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 31. Our calculations also showed that LI isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 18 hedge funds in our database with LI positions at the end of the first quarter.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 79 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Paul Marshall Marshall Wace
Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, plant based food market is expected to explode 100-fold by 2050, so we are checking out this under-the-radar stock. We go through lists like the 10 best growth stocks to buy to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind we're going to take a glance at the recent hedge fund action regarding Li Auto Inc. (NASDAQ:LI).

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

Heading into the third quarter of 2021, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from the first quarter of 2020. On the other hand, there were a total of 0 hedge funds with a bullish position in LI a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Is LI A Good Stock To Buy?
Is LI A Good Stock To Buy?

Among these funds, Jericho Capital Asset Management held the most valuable stake in Li Auto Inc. (NASDAQ:LI), which was worth $131 million at the end of the second quarter. On the second spot was Citadel Investment Group which amassed $60.5 million worth of shares. Coatue Management, Marshall Wace LLP, and Segantii Capital 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 Jericho Capital Asset Management allocated the biggest weight to Li Auto Inc. (NASDAQ:LI), around 3.1% of its 13F portfolio. One01 Capital is also relatively very bullish on the stock, designating 1.73 percent of its 13F equity portfolio to LI.

As industrywide interest jumped, key hedge funds have jumped into Li Auto Inc. (NASDAQ:LI) headfirst. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, initiated the most outsized position in Li Auto Inc. (NASDAQ:LI). Marshall Wace LLP had $45.8 million invested in the company at the end of the quarter. Simon Sadler's Segantii Capital also initiated a $44.9 million position during the quarter. The following funds were also among the new LI investors: Cliff Asness's AQR Capital Management, Glen Kacher's Light Street Capital, and Karim Abbadi and Edward McBride's Centiva Capital.

Let's go over hedge fund activity in other stocks similar to Li Auto Inc. (NASDAQ:LI). We will take a look at Chunghwa Telecom Co., Ltd (NYSE:CHT), Southwest Airlines Co. (NYSE:LUV), Carnival Corporation (NYSE:CCL), Waste Connections, Inc. (NYSE:WCN), Copart, Inc. (NASDAQ:CPRT), Lennar Corporation (NYSE:LEN), and Ferguson plc (NYSE:FERG). All of these stocks' market caps resemble LI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CHT,7,164618,4 LUV,49,926293,-3 CCL,31,456173,-13 WCN,32,763813,1 CPRT,44,992348,-5 LEN,50,1974872,1 FERG,11,6877154,6 Average,32,1736467,-1.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 32 hedge funds with bullish positions and the average amount invested in these stocks was $1736 million. That figure was $457 million in LI's case. Lennar Corporation (NYSE:LEN) is the most popular stock in this table. On the other hand Chunghwa Telecom Co., Ltd (NYSE:CHT) is the least popular one with only 7 bullish hedge fund positions. Li Auto Inc. (NASDAQ:LI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for LI is 41.5. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and surpassed the market again by 1.6 percentage points. Unfortunately LI wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); LI investors were disappointed as the stock returned -7.6% since the end of June (through 10/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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

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