Polen Capital Management recently released its Q1 2021 Investor Letter, a copy of which you can download here. During the first quarter of 2021, the Polen Global Emerging Markets Growth Composite Portfolio returned 0.17% gross of fees, while the MSCI Emerging Markets Index was up 2.29%. You should check out Polen Capital’s top 5 stock picks for investors to buy right now, which could be the biggest winners of this year.
In the Q1 2021 Investor Letter, the fund highlighted a few stocks and Tencent Music Entertainment Group (NYSE:TME) is one of them. Tencent Music Entertainment Group (NYSE:TME) is a company that develops music streaming services for the Chinese market. In the last three months, Tencent Music Entertainment Group (NYSE:TME) stock lost 43%. Here is what the fund said:
“One holding that experienced significant share price dislocation was Tencent Music, which performed favorably for most of the quarter, before being caught up in the well-publicized forced deleveraging of one large shareholder in late March. In just three days the share price of Tencent Music fell by 50%. As far as we can gather, no fundamental news flow was associated with this decline. We believe its sell-off was driven by the same aggressive selling pressure that forced similar drops to the share prices of companies such as Baidu, Vipshop, Discovery Communications, and Viacom.
Our underlying view of the company’s prospects are unchanged. With the valuation halved, we considered this non-fundamentally driven fire-sale as an opportunity to buy more of a great asset at an attractive price, and accordingly, added to our position. We were pleased to observe that Tencent Music management likely reached a similar conclusion, as it quickly reacted with a $1 billion USD buyback program.
Tencent Music can be thought of as the Spotify of China with a few differences. The main difference is the bargaining power dynamic. Tencent Music is the dominant audio streaming platform in China with over 600 million monthly users, and roughly 80% market share in terms of listeners. In the West, three big record labels—Warner Music, Sony Music, and Universal Music—control almost all of the recording artists. In China, the market is much more fragmented with a few scaled Chinese artist record labels, and the share of Warner, Sony, and Universal in China remains low. For us, this means that Tencent Music is a critical partner for any record label (or artist) that wants to reach music fans in China. Seemingly, this is a value chain that favours Tencent Music in China in a way that we think is materially more attractive than it is for Spotify’s/Apple Music’s/Amazon Music’s businesses in other parts of the world. Tencent Music is highly profitable with net margins of approximately 14% versus Spotify, which has been loss making since 2015.”
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In May, we published an article revealing that Tencent Music Entertainment Group (NYSE:TME) was one of the top 10 best stocks to buy now according to Louis Navellier.
Our calculations showed that Tencent Music Entertainment Group (NYSE:TME) isn’t ranked among the 30 most popular stocks among hedge funds.
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Disclosure: None. This article is originally published at Insider Monkey.
