Less than a year ago investors were scrambling to pick up shares in Alibaba Group Holding Ltd. when Asia’s largest e-commerce company made its record debut on the New York Stock Exchange. Now sentiment is changing as JD.com Inc., its smaller competitor, is becoming a hedge fund favorite.
Hedge funds have boosted their ownership in JD.com to 18 percent as of the end of June from 1.2 percent in the third quarter of last year, according to data in public filings compiled by Bloomberg. They cut holdings in Alibaba by more than a third to about 3.1 percent during the period.
American depositary receipts of JD.com have advanced 41 percent since their listing in New York in May 2014, while Alibaba has gained 3 percent from its September initial public offering level, after soaring as much as 75 percent to a record in November.
Investors seeking exposure to the world’s largest pool of Internet users are betting that JD.com’s ability to offer higher quality products through its direct delivery model will help it maintain a faster growth rate.
While Alibaba still dominates with the largest total transaction value across its platforms, JD.com has been boosting its sales at a pace that was more than double its rival this year, narrowing the gap in market shares.
“They have different business models and JD.com is growing much faster,”
Gabriel Wallach, founder of North Grove Capital in Boston which invests in Chinese stocks, said by phone on Friday. His company owns both shares in both Alibaba and JD.com.
Hedge funds prefer JD.com because of its expansion rate, ability to deliver on quarterly earning and its “cleaner e-commerce model,” he said.
Filings show funds run by proteges of Julian Robertson, the so-called Tiger cubs, were among sellers of Alibaba shares last quarter.
Chase Coleman’s Tiger Global Management cut its holdings to $7.7 million while more than doubling the stake in JD.com to $2.4 billion to become the online retailer’s biggest hedge-fund investor last quarter.
Lone Pine Capital added to its holdings of JD.com share for a second straight quarter, increasing it to about $1.4 billion at the end of June, while Coatue Management also bought more shares in the Beijing-based company, boosting the fund’s ownership to more than $500 million in market value.
The family office of billionaire investor George Soros started purchasing JD.com shares last quarter while selling most of its Alibaba stock, the filings show.
Robert Christie, a U.S.-based spokesman at Alibaba, and Josh Gartner of JD.com declined to comment on the trading in the shares.
JD.com operates a business model similar to Amazon.com Inc. in the U.S., selling and delivering goods directly to customers, enabling the company to control quality and shipping. Alibaba gets most of its earnings from merchants who pay to use its market platforms to reach buyers, mimicking how San Jose, California-based EBay Inc. operates.
JD.com’s gross merchandise volume, a measure online retailers use to calculate the total value of sales made on their platforms, jumped 89 percent in the first half of 2015 from a year earlier to 202 billion yuan ($31.5 billion).
Alibaba’s grew 37 percent to 1.3 trillion yuan, according to earnings statements. Full-year revenue for JD.com rose 66 percent in 2014, while Alibaba’s expanded by 46 percent in its last fiscal year.
A report issued by a Chinese government agency in January saying Alibaba failed to root out fake goods on its platforms caused concern the company’s insufficient monitoring of deals from retailers on its sites may crimp growth in customer purchases, prompting Chairman Jack Ma to pledge to step up anti-counterfeit efforts.
“Customer experience in terms of logistics and product quality is far superior at JD.com’s direct e-commerce model than at Alibaba’s marketplace model,” Alistair Way at Standard Life Investments, a portfolio manager based in Edinburgh who holds shares in JD.com, said in an e-mail.