Is Spotify (SPOT) A Great Investment Pick?

East 72, an investment management firm, published its second quarter 2021 investor letter – a copy of which can be downloaded here.  A quarterly portfolio gross return of 6.2% was recorded by the fund for the 2nd quarter of 2021 and a 33.6% gross return over the fiscal year. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

In the Q2 2021 investor letter of East 72, the fund mentioned Spotify Technology S.A. (NYSE: SPOT), and discussed its stance on the firm. Spotify Technology S.A. is a Stockholm, Sweden-based music streaming services provider, that currently has a $49.9 billion market capitalization. Since the beginning of the year, SPOT delivered a -17.02% return, while its 12-month revenues are down by -3.02%. The stock closed at $263.52 per share on July 06, 2021.

Here is what East 72 has to say about Spotify Technology S.A. in its Q2 2021 investor letter:

“We acquired three stocks on price weakness which all performed exceptionally after our purchase (which includes), Spotify, the streaming audio business, which is now exhibiting pricing power and a wider array of product via podcasting, has risen some 24% over our purchase price.”


Photo by Heidi Fin on Unsplash

Our calculations show that Spotify Technology S.A. (NYSE: SPOT) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the first quarter of 2021, Spotify Technology S.A. was in 46 hedge fund portfolios, compared to 48 funds in the fourth quarter of 2020. SPOT delivered a -6.79% return in the past 3 months.

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 S&P 500 ETFs by 115 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 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.

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