Where Do Hedge Funds Stand On Spotify Technology S.A. (SPOT)?

The Insider Monkey team has completed processing the quarterly 13F filings for the March quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Spotify Technology S.A. (NYSE:SPOT).

Spotify Technology S.A. (NYSE:SPOT) has seen a decrease in hedge fund interest of late. Spotify Technology S.A. (NYSE:SPOT) was in 46 hedge funds’ portfolios at the end of March. The all time high for this statistic is 67. There were 48 hedge funds in our database with SPOT holdings at the end of December. Our calculations also showed that SPOT isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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.

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation, which is why we are checking out this inflation play. We go through lists like 10 best gold stocks to buy to identify promising stocks. 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. With all of this in mind we’re going to take a look at the recent hedge fund action surrounding Spotify Technology S.A. (NYSE:SPOT).

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

At Q1’s end, a total of 46 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the previous quarter. By comparison, 40 hedge funds held shares or bullish call options in SPOT a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, ARK Investment Management was the largest shareholder of Spotify Technology S.A. (NYSE:SPOT), with a stake worth $1042.7 million reported as of the end of March. Trailing ARK Investment Management was Tiger Global Management LLC, which amassed a stake valued at $852.9 million. Polar Capital, Tremblant 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 Arrow Capital Management allocated the biggest weight to Spotify Technology S.A. (NYSE:SPOT), around 7.14% of its 13F portfolio. Marcho Partners is also relatively very bullish on the stock, setting aside 6.13 percent of its 13F equity portfolio to SPOT.

Since Spotify Technology S.A. (NYSE:SPOT) has experienced bearish sentiment from hedge fund managers, it’s easy to see that there is a sect of hedge funds that decided to sell off their full holdings last quarter. It’s worth mentioning that Josh Tarasoff’s Greenlea Lane Capital cut the largest stake of the “upper crust” of funds watched by Insider Monkey, comprising an estimated $26.8 million in stock. Doug Gordon, Jon Hilsabeck and Don Jabro’s fund, Shellback Capital, also cut its stock, about $18.9 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 2 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Spotify Technology S.A. (NYSE:SPOT). These stocks are KLA Corporation (NASDAQ:KLAC), Twitter Inc (NYSE:TWTR), Regeneron Pharmaceuticals Inc (NASDAQ:REGN), Canadian Pacific Railway Limited (NYSE:CP), Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG), The Kraft Heinz Company (NASDAQ:KHC), and Relx PLC (NYSE:RELX). This group of stocks’ market valuations match SPOT’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KLAC 40 1204040 4
TWTR 107 4534754 29
REGN 39 1308238 -7
CP 33 5908185 9
SMFG 14 88068 4
KHC 33 13334618 -3
RELX 4 85198 -4
Average 38.6 3780443 4.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.6 hedge funds with bullish positions and the average amount invested in these stocks was $3780 million. That figure was $2991 million in SPOT’s case. Twitter Inc (NYSE:TWTR) is the most popular stock in this table. On the other hand Relx PLC (NYSE:RELX) is the least popular one with only 4 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 44. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.4% in 2021 through June 18th and beat the market again by 6.1 percentage points. Unfortunately SPOT wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on SPOT were disappointed as the stock returned -7.6% since the end of March (through 6/18) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 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.