In this article, we presented 10 stocks that helped Amish Mehta’s SQN Investors return 46% in 2020. Click to skip ahead and see 5 Stocks That Helped Amish Mehta’s SQN Investors Return 46%.
Amish Mehta’s SQN Investors‘ return of 46% has topped the broader market rally as well as a stunning 43% tech-heavy Nasdaq index run in 2020. We haven’t heard about SQN’s returns in the last days of 2020, but that probably won’t change the fact that SQN is one of best performing hedge funds’ of 2020. Founded in 2014, the long/short value-oriented hedge fund’s strategy of generating gains by investing in tech companies led it to beat the market indices. The tech focused Amish Mehta’s hedge fund maintains a position in 18 stocks, according to the latest 13F filings. The top ten positions account for 72% of the overall portfolio.
Besides strong performance in 2020, Amish Mehta’s SQN Investors have generated double-digit returns between 2015 and 2018.
The hedge fund’s bets on cloud computing companies helped in generating massive returns in 2020. Amish Mehta has made several investments in software companies like ServiceNow Inc., Zendesk Inc., Avalara, and Paycom software to take advantage of technological adoption. Moreover, Amish Mehta’s hedge fund has also created positions in digital transformation companies like Square (SQ) and Shopify (SHOP) to beat the market indices.
Mehta and his small team of 15 persons believe pandemic has changed the businesses and consumers requirements. He thinks the demand for technology adoption is likely to remain high in the years ahead.
In order to pick the best tech stocks, SQN Investors has recently added Farouk Hussein to its small team as a partner. Farouk Hussein previously worked at HGGC where he led technology investments with a primary focus on the software industry.
Amish Mehta is an Indian- American. He was in seventh grade when his parents moved to the United States from India. He holds a bachelor’s degree in economics from the Wharton School and an MBA degree from Harvard Business School. Mehta initially joined McKinsey & Co. and General Atlantic Partners to expand his investing career. He then joined Vector Capital, a technology-focused private equity firm. He left Vector Capital in 2014 to launch SQN Investors.
While Amish Mehta’s reputation remains intact, the same can’t be said of the hedge fund industry as a whole, as its reputation has been tarnished in the last decade during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 78 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 significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Let’s start examining the top 10 stocks that helped Amish Mehta’s SQN Investors to return 46% in fiscal 2020.
10. Paycom Software, Inc. (NYSE: PAYC)
The cloud-based human capital management software service Paycom Software, Inc. (NYSE: PAYC) is among the software stock picks that helped Amish Mehta’s SQN Investors to return 46% in 2020. The hedge fund first initiated a position in software application provider during the second quarter and raised its existing position by 81% during the September quarter. Paycom Software is currently the tenth largest stock holding of SQN Investors.
Shares of Paycom Software rallied almost 45% in the last six months alone. Several other hedge funds are also bullish on Paycom. It was in 38 hedge funds’ portfolios at the end of September compared to the previous all-time high of 36. However, it is not on the list of the 30 most popular stocks among hedge funds.
Cooper Investors, which returned 9.18% in Q3, commented on a few stocks including Paycom Software in an investor’s letter. Here is what Cooper Investors stated:
“In the midst of the technology pullback in September the Fund bought a position in Paycom, a leading Software-as-a-Service [‘SAAS’] provider of payroll and human capital management [‘HCM’] solutions in the US. Founded by CEO Chad Richison in 1998 and based in Oklahoma City, Paycom has built one of the highest quality SAAS businesses we’ve come across, growing its revenues at a rate of 30% with 40% EBITDA margins.”
9. Wix.com Ltd. (NASDAQ: WIX)
Internet services and infrastructure provider Wix.com Ltd. (NASDAQ: WIX) is the ninth-largest stock holding of SQN Investors 13F portfolio. It is among the long-running investments of Amish Mehta’s tech stock portfolio.
Shares of Wix.com rallied almost 100% in the last twelve months, extending the five years gains to 1000%. Its September quarter revenue grew 29.2% year over year while the company’s net premium subscriptions increased 164% from the year-ago quarter to reach 5.3 million.
Spree Capital Advisers also expressed confidence in the future fundamentals of Wix.com. Here is what Spree Capital Advisers stated about Wix in an investors letter:
“Early in the second quarter, we used the market selloff to double the position size of our long-standing investment in Wix.com (WIX). We have long thought that investors were too pessimistic in their view of WIX as a simple website hosting firm, when in reality WIX is an infrastructure layer upon which extremely sticky customers utilize a self-service operating system to manage and grow their businesses. At our purchase price, we believe that investors failed to appreciate WIX’s position at the beginning of a new stage of growth.”
8. Avalara, Inc. (NYSE: AVLR)
Tax compliance software application provider Avalara, Inc. (NYSE: AVLR) has gained Amish Mehta’s confidence since the beginning of 2020. The hedge fund first initiated a position in Avalara during the first quarter of 2020 and increased its position in the third quarter of 2020. It is the eighth largest stock holding of the SQN Investors portfolio.
It appears that SQN Investors benefited from Avalara stake because its shares price rallied 126% in the last twelve months. Other hedge funds are also seeing an upside for Avalara. Tao Value, which has generated a 36% return in the second quarter, commented about Avalara in an investor’s letter. Here is what Tao Value said:
“We have built a position in Avalara, a sales tax and compliance software company in early stages of a secular growth runway. The COVID-19 pandemic made it clear that the future of commerce will be a closely integrated on-line & off-line experience. I see the business tax & compliance as a lagging & underaddressed function within the value chain, for which Avalara is positioned well to capture.”
7. Twilio Inc. (NYSE: TWLO)
Twilio Inc. (NYSE: TWLO) is among the software companies that helped Amish Mehta’s SQN Investors to generate a 46% return in fiscal 2020. The hedge fund has first initiated a position in Twilio in 2019. It is the seventh-largest stock holding of the SQN Investors portfolio. The investment is accounting for 6.56% of the overall portfolio.
Shares of Twilio rallied 244% in the last twelve months, thanks to 50% revenue growth in the September quarter. In addition, the company expects to sustain the revenue growth trend into fiscal 2021.
6. Okta, Inc. (NASDAQ: OKTA)
The software company Okta, Inc. (NASDAQ: OKTA) is among the favorite stocks of Amish Mehta. The hedge fund initiated a position in Okta in 2019. SQN Investors has been holding 462,553 shares of Okta valued around $98.9 million, accounting for 6.91% of the overall portfolio.
SQN Investors have also benefited from Okta’s stake because shares of the software company grew 120% in the last twelve months. The company has generated subscription revenue growth of 43% year over year in the September quarter, with an expectation for full-year revenue in the range of $880 million.
“We are pleased with our strong third-quarter performance,” says CFO Bill Losch “Our strong growth in RPO and revenue, and record cash flows, are evidence of our success with large enterprise customers and the continued secular tailwinds driving our business. We are confident in our ability to continue executing at a high level and thus are raising our fiscal year 2021 outlook for both revenue and profitability.”
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