Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was Spotify Technology S.A. (NYSE:SPOT).
Is Spotify Technology S.A. (NYSE:SPOT) a bargain? Investors who are in the know are turning less bullish. The number of long hedge fund bets shrunk by 2 recently. Our calculations also showed that SPOT isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
If you’d ask most stock holders, hedge funds are seen as slow, old investment vehicles of the past. While there are greater than 8000 funds in operation today, Our researchers choose to focus on the moguls of this group, around 850 funds. Most estimates calculate that this group of people orchestrate most of all hedge funds’ total asset base, and by watching their matchless stock picks, Insider Monkey has unsheathed several investment strategies that have historically defeated the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to analyze the latest hedge fund action regarding Spotify Technology S.A. (NYSE:SPOT).
What does smart money think about Spotify Technology S.A. (NYSE:SPOT)?
Heading into the first quarter of 2020, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SPOT over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Tiger Global Management LLC held the most valuable stake in Spotify Technology S.A. (NYSE:SPOT), which was worth $520.5 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $243.5 million worth of shares. Tremblant Capital, Eminence Capital, and VGI Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position VGI Partners allocated the biggest weight to Spotify Technology S.A. (NYSE:SPOT), around 9.68% of its 13F portfolio. Marcho Partners is also relatively very bullish on the stock, designating 8.79 percent of its 13F equity portfolio to SPOT.
Since Spotify Technology S.A. (NYSE:SPOT) has experienced a decline in interest from hedge fund managers, we can see that there lies a certain “tier” of hedgies who sold off their full holdings heading into Q4. Interestingly, Daniel S. Och’s OZ Management dropped the largest investment of all the hedgies watched by Insider Monkey, valued at about $95.9 million in call options, and Zach Schreiber’s Point State Capital was right behind this move, as the fund dropped about $7.8 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 2 funds heading into Q4.
Let’s go over hedge fund activity in other stocks similar to Spotify Technology S.A. (NYSE:SPOT). These stocks are Centene Corporation (NYSE:CNC), Willis Towers Watson Public Limited Company (NASDAQ:WLTW), PPL Corporation (NYSE:PPL), and ViacomCBS Inc. (NASDAQ:VIAC). All of these stocks’ market caps resemble SPOT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CNC | 62 | 3049441 | 3 |
| WLTW | 35 | 1952657 | -4 |
| PPL | 32 | 598981 | 5 |
| VIAC | 64 | 3293442 | 22 |
| Average | 48.25 | 2223630 | 6.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 48.25 hedge funds with bullish positions and the average amount invested in these stocks was $2224 million. That figure was $1558 million in SPOT’s case. ViacomCBS Inc. (NASDAQ:VIAC) is the most popular stock in this table. On the other hand PPL Corporation (NYSE:PPL) is the least popular one with only 32 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 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. These stocks lost 11.7% in 2020 through March 11th but still beat the market by 3.1 percentage points. A small number of hedge funds were also right about betting on SPOT as the stock returned -9.7% during the same time period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
