Were Hedge Funds Right About Spotify (SPOT)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the fourth quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Spotify Technology S.A. (NYSE:SPOT) based on that data.

Spotify Technology S.A. (NYSE:SPOT) shareholders have witnessed an increase in enthusiasm from smart money recently. Spotify Technology S.A. (NYSE:SPOT) was in 48 hedge funds’ portfolios at the end of December. The all time high for this statistic is 67. There were 44 hedge funds in our database with SPOT holdings at the end of September. Our calculations also showed that SPOT isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

Today there are several formulas investors have at their disposal to size up stocks. A pair of the most innovative formulas are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the top picks of the top fund managers can outpace the market by a healthy amount (see the details here). Also, our monthly newsletter’s portfolio of long stock picks returned 197% since March 2017 (through March 2021) and beat the S&P 500 Index by 124 percentage points. You can download a sample issue of this newsletter on our website .

Cathie Wood ARK Investment Management

Cathie Wood of ARK Investment Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now let’s take a gander at the new hedge fund action surrounding Spotify Technology S.A. (NYSE:SPOT).

Do Hedge Funds Think SPOT Is A Good Stock To Buy Now?

At fourth quarter’s end, a total of 48 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 9% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SPOT over the last 22 quarters. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

More specifically, Tiger Global Management LLC was the largest shareholder of Spotify Technology S.A. (NYSE:SPOT), with a stake worth $1001.9 million reported as of the end of December. Trailing Tiger Global Management LLC was ARK Investment Management, which amassed a stake valued at $741.4 million. Tremblant Capital, Polar Capital, and GLG 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 Greenlea Lane Capital allocated the biggest weight to Spotify Technology S.A. (NYSE:SPOT), around 10.05% of its 13F portfolio. Highside Global Management is also relatively very bullish on the stock, designating 8.15 percent of its 13F equity portfolio to SPOT.

With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. Columbus Circle Investors, managed by Principal Global Investors, assembled the largest position in Spotify Technology S.A. (NYSE:SPOT). Columbus Circle Investors had $15 million invested in the company at the end of the quarter. Rob Cope’s Columbus Point also initiated a $9.2 million position during the quarter. The following funds were also among the new SPOT investors: Frank Fu’s CaaS Capital, Morris Mark’s Mark Asset Management, and Thomas Lee’s Lee Capital Management.

Let’s now take a look at hedge fund activity in other stocks similar to Spotify Technology S.A. (NYSE:SPOT). We will take a look at General Motors Company (NYSE:GM), Marsh & McLennan Companies, Inc. (NYSE:MMC), VMware, Inc. (NYSE:VMW), Atlassian Corporation Plc (NASDAQ:TEAM), The Progressive Corporation (NYSE:PGR), Ferrari N.V. (NYSE:RACE), and ABB Ltd (NYSE:ABB). All of these stocks’ market caps match SPOT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GM 70 6332871 10
MMC 43 1747012 8
VMW 35 405815 4
TEAM 69 4932963 21
PGR 48 1744884 1
RACE 29 1527088 -2
ABB 8 467566 -5
Average 43.1 2451171 5.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 43.1 hedge funds with bullish positions and the average amount invested in these stocks was $2451 million. That figure was $2689 million in SPOT’s case. General Motors Company (NYSE:GM) is the most popular stock in this table. On the other hand ABB Ltd (NYSE:ABB) is the least popular one with only 8 bullish hedge fund positions. Spotify Technology S.A. (NYSE:SPOT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SPOT is 62.8. 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 positive signal but 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 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and beat the market again by 1.6 percentage points. Unfortunately SPOT wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SPOT were disappointed as the stock returned -19.9% since the end of December (through 4/30) 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 many of these stocks already outperformed the market since 2019.

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