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How Did Sonos, Inc. (SONO) Perform In Comparison to Hedge Fund Favorites in 2019?

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 Sonos, Inc. (NASDAQ:SONO).

Is Sonos, Inc. (NASDAQ:SONO) a buy here? Investors who are in the know are getting more optimistic. The number of bullish hedge fund bets went up by 6 in recent months. Our calculations also showed that SONO 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).

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David Brown Hawk Ridge Partners

David Brown of Hawk Ridge Management

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. With all of this in mind we’re going to view the fresh hedge fund action regarding Sonos, Inc. (NASDAQ:SONO).

Hedge fund activity in Sonos, Inc. (NASDAQ:SONO)

At Q3’s end, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 29% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SONO over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Sonos, Inc. (NASDAQ:SONO) was held by Hawk Ridge Management, which reported holding $26.4 million worth of stock at the end of September. It was followed by D E Shaw with a $18.2 million position. Other investors bullish on the company included Trigran Investments, Citadel Investment Group, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Hawk Ridge Management allocated the biggest weight to Sonos, Inc. (NASDAQ:SONO), around 5.29% of its 13F portfolio. Potrero Capital Research is also relatively very bullish on the stock, designating 2.34 percent of its 13F equity portfolio to SONO.

Now, specific money managers were breaking ground themselves. Driehaus Capital, managed by Richard Driehaus, assembled the most valuable position in Sonos, Inc. (NASDAQ:SONO). Driehaus Capital had $1.5 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also made a $1 million investment in the stock during the quarter. The other funds with new positions in the stock are Principal Global Investors’s Columbus Circle Investors, Minhua Zhang’s Weld Capital Management, and Renaissance Technologies.

Let’s now take a look at hedge fund activity in other stocks similar to Sonos, Inc. (NASDAQ:SONO). We will take a look at The Liberty Braves Group (NASDAQ:BATRA), New York Mortgage Trust, Inc. (NASDAQ:NYMT), MACOM Technology Solutions Holdings, Inc. (NASDAQ:MTSI), and Atkore International Group Inc. (NYSE:ATKR). This group of stocks’ market caps are similar to SONO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BATRA 9 68616 0
NYMT 10 25762 0
MTSI 14 197407 -3
ATKR 19 104150 2
Average 13 98984 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $99 million. That figure was $101 million in SONO’s case. Atkore International Group Inc. (NYSE:ATKR) is the most popular stock in this table. On the other hand The Liberty Braves Group (NASDAQ:BATRA) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Sonos, Inc. (NASDAQ:SONO) is more popular among hedge funds. 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 SONO as the stock returned 59.1% in 2019 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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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