Worm Capital LLC, an investment management firm, published its “Longleaf Partners Small-Cap Fund” second quarter 2021 investor letter – a copy of which can be downloaded here. A portfolio quarterly return of -15.18% net of fees, was recorded by the Worm Capital’s long/short equity growth strategy for the second half of 2021, and -1.49% for its long-only equity strategy, while its benchmark, the S&P 500 Index, by comparison returned 15.25% over the same period. You can view the fund’s top 5 holdings to have an idea about their top bets for 2021.
In the Q2 2021 investor letter of Worm Capital, the fund 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 that currently has a $42.4 billion market capitalization. SPOT delivered a -29.46% return since the beginning of the year, while its 12-month returns are down by -11.96%. The stock closed at $221.97 per share on August 06, 2021.
Here is what Worm Capital has to say about Spotify Technology S.A. in its Q2 2021 investor letter:
“Spotify underperformed in the quarter, but we maintain our high conviction in the long-term thesis on each business model. Much like art or writing, investment research is a continuous process—it never really ends. Prices can move in either direction in any given quarter, but our advantage often comes from knowing the businesses so well that short-term fluctuations in pricing shouldn’t affect our decision-making. On high conviction positions, this patience is often rewarded, which is why research is so valuable to our process…
..Spotify has 350+ million users and 158 million paid users—and multiple catalysts for improved operating leverage over time. While the headline focus tends to revolve around margins and lack of current earnings, few on Wall Street seem to recognize the long-term potential: SPOT is focused on a land-grab of users while simultaneously innovating on the platform to create new margin-heavy lines of revenue (e.g. its podcasting advertising platform,
live events, virtual events, direct monetization, etc.). Last May, when SPOT was trading under $200, we wrote that Spotify should be a $500 stock. We maintain that view.”
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 46 hedge fund portfolios at the end of the first quarter of 2021, compared to 48 funds in the fourth quarter of 2020. Spotify Technology S.A. (NYSE: SPOT) delivered a -7.28% 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. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 10 best battery 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.
Disclosure: None. This article is originally published at Insider Monkey.
