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Was The Smart Money Right About Sonos, Inc. (SONO)?

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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 Sonos, Inc. (NASDAQ:SONO) based on that data.

Sonos, Inc. (NASDAQ:SONO) investors should pay attention to an increase in support from the world's most elite money managers of late. Sonos, Inc. (NASDAQ:SONO) was in 47 hedge funds' portfolios at the end of the second quarter of 2021. 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.

Billionaire David Siegel's Top 10 Stock Picks
Billionaire David Siegel's Top 10 Stock Picks

David Siegel of Two Sigma Advisors

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, billionaire John Paulson is loading up on the miners, so we are checking out stock pitches like this mining 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. Now we're going to take a peek at the key hedge fund action regarding Sonos, Inc. (NASDAQ:SONO).

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

Heading into the third quarter of 2021, a total of 47 of the hedge funds tracked by Insider Monkey were long this stock, a change of 2% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SONO over the last 24 quarters. With hedge funds' sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

Among these funds, Two Sigma Advisors held the most valuable stake in Sonos, Inc. (NASDAQ:SONO), which was worth $85.4 million at the end of the second quarter. On the second spot was Renaissance Technologies which amassed $84.3 million worth of shares. 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, setting aside 5.21 percent of its 13F equity portfolio to SONO.

With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Alyeska Investment Group, managed by Anand Parekh, created the largest 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 new positions in the stock 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 also examine hedge fund activity in other stocks - not necessarily in the same industry as Sonos, Inc. (NASDAQ:SONO) but similarly valued. 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 valuations are closest to SONO's market valuation.

[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 29.6% in 2021 through November 5th and still beat the market by 3.1 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 -2.4% since the end of the second quarter (through 11/5) 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.