Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Spotify Technology S.A. (NYSE:SPOT).
Is SPOT a good stock to buy now? Prominent investors were betting on the stock. The number of bullish hedge fund bets inched up by 8 recently. Spotify Technology S.A. (NYSE:SPOT) was in 44 hedge funds' portfolios at the end of September. The all time high for this statistic is 67. Our calculations also showed that SPOT isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the eyes of most traders, hedge funds are perceived as worthless, outdated financial vehicles of yesteryear. While there are greater than 8000 funds in operation at the moment, We hone in on the bigwigs of this group, around 850 funds. These hedge fund managers handle bulk of the hedge fund industry's total asset base, and by paying attention to their first-class equity investments, Insider Monkey has formulated various investment strategies that have historically exceeded Mr. Market. Insider Monkey's flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .
Chase Coleman of Tiger Global
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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 website. Now let's check out the fresh hedge fund action surrounding Spotify Technology S.A. (NYSE:SPOT).
Do Hedge Funds Think SPOT Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 22% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in SPOT over the last 21 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
Among these funds, Tiger Global Management LLC held the most valuable stake in Spotify Technology S.A. (NYSE:SPOT), which was worth $772.7 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $164.1 million worth of shares. 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 Highside Global Management allocated the biggest weight to Spotify Technology S.A. (NYSE:SPOT), around 8.66% of its 13F portfolio. Marcho Partners is also relatively very bullish on the stock, earmarking 8.43 percent of its 13F equity portfolio to SPOT.
Consequently, specific money managers were leading the bulls' herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the biggest position in Spotify Technology S.A. (NYSE:SPOT). Arrowstreet Capital had $46.8 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also initiated a $29.1 million position during the quarter. The other funds with new positions in the stock are Zach Petrone's Highside Global Management, Dmitry Balyasny's Balyasny Asset Management, and Michael Rockefeller and KarláKroeker's Woodline Partners.
Let's now review hedge fund activity in other stocks similar to Spotify Technology S.A. (NYSE:SPOT). These stocks are Illumina, Inc. (NASDAQ:ILMN), Atlassian Corporation Plc (NASDAQ:TEAM), Biogen Inc. (NASDAQ:BIIB), Westpac Banking Corporation (NYSE:WBK), Relx PLC (NYSE:RELX), Analog Devices, Inc. (NASDAQ:ADI), and Lululemon Athletica inc. (NASDAQ:LULU). This group of stocks' market values are closest to SPOT's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ILMN,44,1373332,3 TEAM,48,3228678,-7 BIIB,59,3236819,-4 WBK,4,25293,0 RELX,6,114897,0 ADI,52,3649787,3 LULU,50,1273396,11 Average,37.6,1843172,0.9 [/table]
As you can see these stocks had an average of 37.6 hedge funds with bullish positions and the average amount invested in these stocks was $1843 million. That figure was $1642 million in SPOT's case. Biogen Inc. (NASDAQ:BIIB) is the most popular stock in this table. On the other hand Westpac Banking Corporation (NYSE:WBK) is the least popular one with only 4 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 66.1. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Hedge funds were also right about betting on SPOT as the stock returned 37.2% since the end of Q3 (through 12/8) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
