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Were Hedge Funds Right About Spotify Technology S.A. (SPOT)?

At Insider Monkey, we pore over the filings of nearly 750 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not Spotify Technology S.A. (NYSE:SPOT) makes for a good investment right now.

Spotify Technology S.A. (NYSE:SPOT) shareholders have witnessed a decrease in hedge fund interest recently. However, overall hedge fund sentiment towards the stock is still very bullish.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 32 percentage points since May 2014 through March 12, 2019 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

COATUE MANAGEMENT

We’re going to check out the new hedge fund action regarding Spotify Technology S.A. (NYSE:SPOT).

How are hedge funds trading Spotify Technology S.A. (NYSE:SPOT)?

Heading into the first quarter of 2019, a total of 45 of the hedge funds tracked by Insider Monkey were long this stock, a change of -33% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SPOT over the last 14 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

SPOT_mar2019

Among these funds, Tiger Global Management LLC held the most valuable stake in Spotify Technology S.A. (NYSE:SPOT), which was worth $1453.3 million at the end of the third quarter. On the second spot was Coatue Management which amassed $419.4 million worth of shares. Moreover, Cadian Capital, Steadfast Capital Management, and Melvin Capital Management were also bullish on Spotify Technology S.A. (NYSE:SPOT), allocating a large percentage of their portfolios to this stock.

Because Spotify Technology S.A. (NYSE:SPOT) has witnessed bearish sentiment from hedge fund managers, we can see that there was a specific group of hedge funds who sold off their full holdings heading into Q3. Intriguingly, Alex Snow’s Lansdowne Partners dropped the biggest investment of the 700 funds monitored by Insider Monkey, comprising an estimated $185.6 million in stock, and Josh Resnick’s Jericho Capital Asset Management was right behind this move, as the fund sold off about $185.5 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 22 funds heading into Q3.

Let’s check out hedge fund activity in other stocks similar to Spotify Technology S.A. (NYSE:SPOT). These stocks are PPL Corporation (NYSE:PPL), Telefonica Brasil SA (NYSE:VIV), M&T Bank Corporation (NYSE:MTB), and DTE Energy Company (NYSE:DTE). This group of stocks’ market caps match SPOT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PPL 23 798188 -1
VIV 12 151235 -1
MTB 42 1495917 1
DTE 23 561927 -2
Average 25 751817 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $752 million. That figure was $2878 million in SPOT’s case. M&T Bank Corporation (NYSE:MTB) is the most popular stock in this table. On the other hand Telefonica Brasil SA (NYSE:VIV) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Spotify Technology S.A. (NYSE:SPOT) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also right about betting on Spotify as the stock returned 25% and outperformed the market as well.

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

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