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Hedge Funds Never Been Less Bullish On Spotify (SPOT)

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Spotify Technology S.A. (NYSE:SPOT) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Spotify Technology S.A. (NYSE:SPOT) has experienced a decrease in support from the world’s most elite money managers in recent months. Spotify Technology S.A. (NYSE:SPOT) was in 36 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 67. Our calculations also showed that SPOT isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

CITADEL INVESTMENT GROUP

Ken Griffin of Citadel Investment Group

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. Now we’re going to analyze the key hedge fund action surrounding Spotify Technology S.A. (NYSE:SPOT).

How have hedgies been trading Spotify Technology S.A. (NYSE:SPOT)?

At Q2’s end, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SPOT over the last 20 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is SPOT A Good Stock To Buy?

The largest stake in Spotify Technology S.A. (NYSE:SPOT) was held by Tiger Global Management LLC, which reported holding $822.5 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $325.6 million position. Other investors bullish on the company included Citadel Investment Group, Tremblant Capital, and Eminence Capital. In terms of the portfolio weights assigned to each position Marcho Partners allocated the biggest weight to Spotify Technology S.A. (NYSE:SPOT), around 20.03% of its 13F portfolio. Voleon Capital is also relatively very bullish on the stock, designating 14.07 percent of its 13F equity portfolio to SPOT.

Because Spotify Technology S.A. (NYSE:SPOT) has faced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of hedgies that decided to sell off their entire stakes by the end of the second quarter. Intriguingly, Robert M. P. Luciano’s VGI Partners dropped the biggest stake of the “upper crust” of funds monitored by Insider Monkey, valued at an estimated $97.5 million in stock, and Brandon Haley’s Holocene Advisors was right behind this move, as the fund dumped about $30.8 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 4 funds by the end of the second quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Spotify Technology S.A. (NYSE:SPOT) but similarly valued. We will take a look at Dollar General Corp. (NYSE:DG), Barrick Gold Corporation (NYSE:GOLD), Equinor ASA (NYSE:EQNR), Lam Research Corporation (NASDAQ:LRCX), The Progressive Corporation (NYSE:PGR), Square, Inc. (NYSE:SQ), and Relx PLC (NYSE:RELX). This group of stocks’ market values resemble SPOT’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DG 67 2296237 7
GOLD 52 3360658 -2
EQNR 10 237155 -1
LRCX 62 2537918 8
PGR 50 1147531 -1
SQ 66 3487480 10
RELX 6 118963 1
Average 44.7 1883706 3.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 44.7 hedge funds with bullish positions and the average amount invested in these stocks was $1884 million. That figure was $1882 million in SPOT’s case. Dollar General Corp. (NYSE:DG) is the most popular stock in this table. On the other hand Relx PLC (NYSE:RELX) is the least popular one with only 6 bullish hedge fund positions. Spotify Technology S.A. (NYSE:SPOT) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SPOT is 41.7. 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 negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and surpassed the market by 23.2 percentage points. Unfortunately SPOT wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); SPOT investors were disappointed as the stock returned 9.3% since Q2 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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