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2019 Review: Top Hedge Fund Stocks vs. Spotify Technology S.A. (SPOT)

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 10 percentage points in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Spotify Technology S.A. (NYSE:SPOT).

Is Spotify Technology S.A. (NYSE:SPOT) a buy here? Hedge funds are in a pessimistic mood. The number of bullish hedge fund positions were cut by 5 lately. 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 at the end of this article for Q2 rankings). SPOT was in 37 hedge funds’ portfolios at the end of the third quarter of 2019. There were 42 hedge funds in our database with SPOT positions at the end of the previous quarter.

If you’d ask most shareholders, hedge funds are assumed to be slow, old investment vehicles of yesteryear. While there are more than 8000 funds with their doors open at the moment, We hone in on the masters of this group, around 750 funds. Most estimates calculate that this group of people command the majority of all hedge funds’ total asset base, and by keeping track of their unrivaled investments, Insider Monkey has determined various investment strategies that have historically surpassed Mr. Market. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points a year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Chase Coleman of Tiger Global

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Keeping this in mind we’re going to check out the key hedge fund action regarding Spotify Technology S.A. (NYSE:SPOT).

Hedge fund activity in Spotify Technology S.A. (NYSE:SPOT)

At the end of the third quarter, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from the second quarter of 2019. On the other hand, there were a total of 67 hedge funds with a bullish position in SPOT 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.

Among these funds, Tiger Global Management held the most valuable stake in Spotify Technology S.A. (NYSE:SPOT), which was worth $463.1 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $168 million worth of shares. Cadian Capital, Eminence Capital, and Tremblant Capital 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 VGI Partners allocated the biggest weight to Spotify Technology S.A. (NYSE:SPOT), around 8.02% of its 13F portfolio. Tremblant Capital is also relatively very bullish on the stock, setting aside 6.61 percent of its 13F equity portfolio to SPOT.

Due to the fact that Spotify Technology S.A. (NYSE:SPOT) has faced bearish sentiment from hedge fund managers, it’s safe to say that there was a specific group of money managers that slashed their entire stakes in the third quarter. Interestingly, Robert Pitts’s Steadfast Capital Management dropped the biggest investment of the 750 funds monitored by Insider Monkey, valued at an estimated $175.2 million in stock. Aaron Cowen’s fund, Suvretta Capital Management, also dumped its stock, about $138.4 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 5 funds in the third quarter.

Let’s check out hedge fund activity in other stocks similar to Spotify Technology S.A. (NYSE:SPOT). These stocks are Fresenius Medical Care AG & Co. (NYSE:FMS), Ameren Corporation (NYSE:AEE), TAL Education Group (NYSE:TAL), and Match Group, Inc. (NASDAQ:MTCH). This group of stocks’ market valuations match SPOT’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FMS 5 3764 -4
AEE 30 1557458 12
TAL 20 1504129 -5
MTCH 41 1106508 10
Average 24 1042965 3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $1043 million. That figure was $1470 million in SPOT’s case. Match Group, Inc. (NASDAQ:MTCH) is the most popular stock in this table. On the other hand Fresenius Medical Care AG & Co. (NYSE:FMS) is the least popular one with only 5 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 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 10.1 percentage points. Hedge funds were also right about betting on SPOT, though not to the same extent, as the stock returned 31.8% during 2019 and outperformed the market as well.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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