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Hedge Funds Are Piling Into Sonos, Inc. (SONO)

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With the second-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the third quarter of 2021. One of these stocks was Sonos, Inc. (NASDAQ:SONO).

Sonos, Inc. (NASDAQ:SONO) shareholders have witnessed an increase in hedge fund interest lately. Sonos, Inc. (NASDAQ:SONO) was in 47 hedge funds' portfolios at the end of June. The all time high for this statistic is 46. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that SONO isn't among the 30 most popular stocks among hedge funds (click for Q2 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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. 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 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.

Andrew Sandler of Sandler Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, artificial intelligence is one of the fastest-growing industries right now, so we are checking out stock pitches like this emerging AI stock. We go through lists like the 10 best EV stocks 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 encompassing Sonos, Inc. (NASDAQ:SONO).

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

At second quarter's end, a total of 47 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 2% from the first quarter of 2020. By comparison, 35 hedge funds held shares or bullish call options in SONO a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Two Sigma Advisors was the largest shareholder of Sonos, Inc. (NASDAQ:SONO), with a stake worth $85.4 million reported as of the end of June. Trailing Two Sigma Advisors was Renaissance Technologies, which amassed a stake valued at $84.3 million. D E Shaw, Citadel Investment Group, and Antipodes Partners 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 Ararat Capital allocated the biggest weight to Sonos, Inc. (NASDAQ:SONO), around 7.51% of its 13F portfolio. Stony Point Capital is also relatively very bullish on the stock, earmarking 5.21 percent of its 13F equity portfolio to SONO.

Consequently, key hedge funds have jumped into Sonos, Inc. (NASDAQ:SONO) headfirst. Alyeska Investment Group, managed by Anand Parekh, initiated the most valuable position in Sonos, Inc. (NASDAQ:SONO). Alyeska Investment Group had $22.1 million invested in the company at the end of the quarter. Andrew Sandler's Sandler Capital Management also made a $18.4 million investment in the stock during the quarter. The other funds with brand new SONO positions are Brian Ashford-Russell and Tim Woolley's Polar Capital, Matthew Mark's Jet Capital Investors, and Steve Cohen's Point72 Asset Management.

Let's go over hedge fund activity in other stocks similar to Sonos, Inc. (NASDAQ:SONO). These stocks are ACI Worldwide Inc (NASDAQ:ACIW), Alignment Healthcare, Inc. (NASDAQ:ALHC), ICU Medical, Inc. (NASDAQ:ICUI), Tenable Holdings, Inc. (NASDAQ:TENB), Magnite Inc. (NASDAQ:MGNI), LivePerson, Inc. (NASDAQ:LPSN), and Allison Transmission Holdings Inc (NYSE:ALSN). This group of stocks' market caps are closest to SONO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ACIW,26,658955,3 ALHC,4,26081,-13 ICUI,27,324811,1 TENB,33,629836,1 MGNI,29,260767,4 LPSN,27,207746,-4 ALSN,23,389663,-7 Average,24.1,356837,-2.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.1 hedge funds with bullish positions and the average amount invested in these stocks was $357 million. That figure was $667 million in SONO's case. Tenable Holdings, Inc. (NASDAQ:TENB) is the most popular stock in this table. On the other hand Alignment Healthcare, Inc. (NASDAQ:ALHC) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Sonos, Inc. (NASDAQ:SONO) is more popular among hedge funds. Our overall hedge fund sentiment score for SONO is 86. 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 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 22.9% in 2021 through October 1st and still beat the market by 5.6 percentage points. Unfortunately SONO wasn't nearly as popular as these 5 stocks and hedge funds that were betting on SONO were disappointed as the stock returned -8.4% since the end of the second quarter (through 10/1) 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 since 2019.

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