You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund managers like Jeff Ubben, George Soros and Seth Klarman hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.
Is Sonos, Inc. (NASDAQ:SONO) a good investment right now? Prominent investors are getting more optimistic. The number of long hedge fund positions increased by 10 lately. Our calculations also showed that sono isn’t among the 30 most popular stocks among hedge funds. SONO was in 22 hedge funds’ portfolios at the end of the first quarter of 2019. There were 12 hedge funds in our database with SONO holdings at the end of the previous quarter.
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 market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Paul Marshall of Marshall Wace
Let’s take a gander at the key hedge fund action regarding Sonos, Inc. (NASDAQ:SONO).
How have hedgies been trading Sonos, Inc. (NASDAQ:SONO)?
At the end of the first quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 83% from one quarter earlier. On the other hand, there were a total of 0 hedge funds with a bullish position 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.
Among these funds, Citadel Investment Group held the most valuable stake in Sonos, Inc. (NASDAQ:SONO), which was worth $14.2 million at the end of the first quarter. On the second spot was Portolan Capital Management which amassed $8.6 million worth of shares. Moreover, HBK Investments, Hawk Ridge Management, and Marshall Wace LLP were also bullish on Sonos, Inc. (NASDAQ:SONO), allocating a large percentage of their portfolios to this stock.
Consequently, some big names were breaking ground themselves. Portolan Capital Management, managed by George McCabe, created the most outsized position in Sonos, Inc. (NASDAQ:SONO). Portolan Capital Management had $8.6 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $5.4 million investment in the stock during the quarter. The following funds were also among the new SONO investors: Jack Ripsteen’s Potrero Capital Research, John Overdeck and David Siegel’s Two Sigma Advisors, and Douglas T. Granat’s Trigran Investments.
Let’s now take a look at hedge fund activity in other stocks similar to Sonos, Inc. (NASDAQ:SONO). These stocks are Hyster-Yale Materials Handling Inc (NYSE:HY), GameStop Corp. (NYSE:GME), First Bancorp (NASDAQ:FBNC), and AtriCure Inc. (NASDAQ:ATRC). This group of stocks’ market valuations resemble SONO’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HY | 11 | 35854 | 2 |
| GME | 27 | 88161 | 0 |
| FBNC | 16 | 97868 | 0 |
| ATRC | 25 | 123086 | 3 |
| Average | 19.75 | 86242 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $86 million. That figure was $75 million in SONO’s case. GameStop Corp. (NYSE:GME) is the most popular stock in this table. On the other hand Hyster-Yale Materials Handling Inc (NYSE:HY) is the least popular one with only 11 bullish hedge fund positions. Sonos, Inc. (NASDAQ:SONO) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on SONO, though not to the same extent, as the stock returned 0.5% during the same time frame and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
