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Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Spotify Technology S.A. (NYSE:SPOT) in this article.
Is SPOT stock a buy or sell? Spotify Technology S.A. (NYSE:SPOT) was in 48 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 67. SPOT investors should pay attention to an increase in enthusiasm from smart money recently. There were 44 hedge funds in our database with SPOT positions at the end of the third quarter. Our calculations also showed that SPOT isn't among the 30 most popular stocks among hedge funds (click for Q4 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. Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 124 percentage points since March 2017 (see the details here).
Noam Gottesman of GLG Partners
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell 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 (or at the end of this article). Now we're going to check out the latest hedge fund action regarding Spotify Technology S.A. (NYSE:SPOT).
Do Hedge Funds Think SPOT Is A Good Stock To Buy Now?
At Q4's end, a total of 48 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SPOT over the last 22 quarters. With hedgies' sentiment swirling, there exists a select group of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
More specifically, Tiger Global Management LLC was the largest shareholder of Spotify Technology S.A. (NYSE:SPOT), with a stake worth $1001.9 million reported as of the end of December. Trailing Tiger Global Management LLC was ARK Investment Management, which amassed a stake valued at $741.4 million. Tremblant Capital, Polar Capital, and GLG 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 Greenlea Lane Capital allocated the biggest weight to Spotify Technology S.A. (NYSE:SPOT), around 10.05% of its 13F portfolio. Highside Global Management is also relatively very bullish on the stock, earmarking 8.15 percent of its 13F equity portfolio to SPOT.
With a general bullishness amongst the heavyweights, key hedge funds have jumped into Spotify Technology S.A. (NYSE:SPOT) headfirst. Columbus Circle Investors, managed by Principal Global Investors, established the most valuable position in Spotify Technology S.A. (NYSE:SPOT). Columbus Circle Investors had $15 million invested in the company at the end of the quarter. Rob Cope's Columbus Point also initiated a $9.2 million position during the quarter. The following funds were also among the new SPOT investors: Frank Fu's CaaS Capital, Morris Mark's Mark Asset Management, and Thomas Lee's Lee Capital Management.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Spotify Technology S.A. (NYSE:SPOT) but similarly valued. These stocks are General Motors Company (NYSE:GM), Marsh & McLennan Companies, Inc. (NYSE:MMC), VMware, Inc. (NYSE:VMW), Atlassian Corporation Plc (NASDAQ:TEAM), The Progressive Corporation (NYSE:PGR), Ferrari N.V. (NYSE:RACE), and ABB Ltd (NYSE:ABB). This group of stocks' market valuations resemble SPOT's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GM,70,6332871,10 MMC,43,1747012,8 VMW,35,405815,4 TEAM,69,4932963,21 PGR,48,1744884,1 RACE,29,1527088,-2 ABB,8,467566,-5 Average,43.1,2451171,5.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 43.1 hedge funds with bullish positions and the average amount invested in these stocks was $2451 million. That figure was $2689 million in SPOT's case. General Motors Company (NYSE:GM) is the most popular stock in this table. On the other hand ABB Ltd (NYSE:ABB) is the least popular one with only 8 bullish hedge fund positions. Spotify Technology S.A. (NYSE:SPOT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SPOT is 62.8. 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 positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and beat the market again by 0.8 percentage points. Unfortunately SPOT wasn't nearly as popular as these 30 stocks and hedge funds that were betting on SPOT were disappointed as the stock returned -13.5% since the end of December (through 3/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.