During the first half of the fourth quarter, the Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by about 4 percentage points as investors worried over the possible ramifications of rising interest rates. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only 298 S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Spotify Technology S.A. (NYSE:SPOT) and see how the stock is affected by the recent hedge fund activity.
Spotify Technology S.A. (NYSE:SPOT) has seen an increase in activity from the world’s largest hedge funds recently. SPOT was in 67 hedge funds’ portfolios at the end of the third quarter of 2018. There were 53 hedge funds in our database with SPOT positions at the end of the previous quarter. Our calculations also showed that SPOT isn’t among the 30 most popular stocks among hedge funds.
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 the 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 18 percentage points since May 2014 through December 3, 2018 (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.
Let’s go over the latest hedge fund action encompassing Spotify Technology S.A. (NYSE:SPOT).
How are hedge funds trading Spotify Technology S.A. (NYSE:SPOT)?
At Q3’s end, a total of 67 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 26% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards SPOT over the last 13 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Spotify Technology S.A. (NYSE:SPOT) was held by Tiger Global Management LLC, which reported holding $2315.1 million worth of stock at the end of September. It was followed by Coatue Management with a $391.9 million position. Other investors bullish on the company included Melvin Capital Management, Steadfast Capital Management, and Lansdowne Partners.
Consequently, some big names have been driving this bullishness. Melvin Capital Management, managed by Gabriel Plotkin, assembled the biggest position in Spotify Technology S.A. (NYSE:SPOT). Melvin Capital Management had $274.8 million invested in the company at the end of the quarter. The other funds with new positions in the stock are Jacob Doft’s Highline Capital Management, Leon Shaulov’s Maplelane Capital, and Brandon Haley’s Holocene Advisors.
Let’s go over hedge fund activity in other stocks similar to Spotify Technology S.A. (NYSE:SPOT). We will take a look at Johnson Controls International plc (NYSE:JCI), Monster Beverage Corp (NASDAQ:MNST), Keurig Dr Pepper Inc. (NYSE:KDP), and Moody’s Corporation (NYSE:MCO). This group of stocks’ market values are closest to SPOT’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| JCI | 16 | 513903 | 5 |
| MNST | 32 | 1209570 | 5 |
| KDP | 25 | 898629 | 5 |
| MCO | 35 | 5872297 | 5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $2124 million. That figure was $5371 million in SPOT’s case. Moody’s Corporation (NYSE:MCO) is the most popular stock in this table. On the other hand Johnson Controls International plc (NYSE:JCI) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Spotify Technology S.A. (NYSE:SPOT) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.
