Rowan Street Capital LLC, an investment management firm, published its third-quarter 2021 investor letter – a copy of which can be seen here. A quarterly return of -13% was recorded by the fund for the third quarter of 2021, causing it to decline by -9.2% (net) year-to-date as of September 30. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.
Rowan Street Capital, in its Q3 2021 investor letter, mentioned Spotify Technology S.A. (NYSE: SPOT) and discussed its stance on the firm. Spotify Technology S.A. is a Stockholm, Sweden-based music streaming services provider with a $53.3 billion market capitalization. SPOT delivered a -11.41% return since the beginning of the year, while its 12-month returns are up by 11.50%. The stock closed at $278.75 per share on November 9, 2021.
Here is what Rowan Street Capital has to say about Spotify Technology S.A. in its Q3 2021 investor letter:
“At Rowan Street, the #1 fundamental principle of everything we do is we have a mindset of a business owner — this is how we approach all our investments. When you start looking at the world through the lens of a business owner, you start paying less and less attention to the stock tickers that bounce up and down every day and realize that most of the time these daily stock price gyrations have very little to do with the long term intrinsic value of the business. Over the long run, however, stock prices accurately reflect the fundamentals of businesses. For example, when you purchase a house or a commercial property or buy into a small business, you do not get a quote on it every single moment or every single day. You are in it for the long run, and you make your investment decision based on the earnings that your property or business can generate over the next 5-10 years in relation to the capital that you have to put up up-front.
This is exactly how we structure the portfolio of our fund and how we judge the performance of our businesses, in which we are minority owners.
Let’s look at one of our investments, Spotify, as an example. We encourage you to review our investment thesis on Spotify that we published in our Q2 2020 Letter and in H1 2021 Letter. The company went public in April of 2018 and since the stock has delivered the following calendar year returns:
2018: -24% (since IPO date)
2019: +32%
2020: +110%
2021: -26% (as of this writing)
As you can see, performance of an individual stock can be very lumpy from year to year. Spotify was the biggest contributor to our funds’ performance in 2020 and it’s the second biggest detractor thus far in 2021. Do these short-term stock price gyrations matter to us? Absolutely not! Focusing on this and judging our investment based on how it performs in any given year would be akin to attempting to win a football game while keeping our eyes on the scoreboard. This is why at Rowan Street, our eyes will always be focused on the “playing field”. If we continue to do that, the score will take care of itself over time!
What does it look like on the “playing field” for Spotify?…” (Click here to see the full text)
Photo by Alexander Shatov on Unsplash
Based on our calculations, Spotify Technology S.A. (NYSE: SPOT) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. SPOT was in 48 hedge fund portfolios at the end of the first half of 2021, compared to 46 funds in the previous quarter. Spotify Technology S.A. (NYSE: SPOT) delivered a 29.36% return in the past 3 months.
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.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. Recently we came across a high-growth stock that has tons of hidden assets and is trading at an extremely cheap valuation. We go through lists like the 10 best growth stocks to buy 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.
Disclosure: None. This article is originally published at Insider Monkey.
