Artisan Small Cap on Zscaler (ZS): “We Ended our Successful Campaign”

Artisan Partners Limited Partnership, a high value-added investment management firm, published its ‘Artisan Small Cap Fund’ fourth quarter 2020 investor letter – a copy of which can be downloaded here. A return of 27.07% was recorded by its Investor Class: ARTSX, 27.14% by its Advisor Class: APDSX, and 27.15% by its Institutional Class: APHSX, in the fourth quarter of 2020, all below its Russell 2000 Growth Benchmark that delivered a 29.61% return and its Russel 2000 Index that was up by 31.37% in the same period. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

Artisan Small Cap Fund, in their Q4 2020 investor letter, mentioned Zscaler, Inc. (NASDAQ: ZS) and emphasized their views on the company. Zscaler, Inc. is a California-based IT security company that currently has a $24.2 billion market capitalization. Since the beginning of the year, ZS delivered a -10.77% return, but its 12-month gains are impressively up by 244%. As of March 17, 2021, the stock closed at $185.33 per share.

Here is what Artisan Small Cap Fund has to say about Zscaler, Inc. in their Q4 2020 investor letter:

“We also exited our investment in Zscaler. Zscaler provides cloudbased Internet security solutions. Cybersecurity remains a top concern for businesses and governments alike as cyberattacks can have devastating financial and reputational consequences. Furthermore, managing the security needs of legacy on-premise applications, a growing number of cloud-based applications (Office 365, Salesforce, etc.) and a remote workforce make operating IT infrastructures increasingly complex. Zscaler’s scalable, cloud-based security platform is a more secure and efficient way to connect users and applications, which eliminates the need for several layers of security (firewalls, VPNs, etc.) developed and built over the last couple of decades. While the pandemic crisis is likely disrupting some areas of Zscaler’s new sales funnel, the company is particularly well-suited to scale and accelerate our market share-gain thesis. Ninety percent of employees are remotely connecting to the enterprise IT network in today’s inverted world, as opposed to prior solutions which are geared to support 10%-20% of workers connecting remotely with the rest connecting from within the walls of a corporate network. Many employees have used traditional VPN connections to log into their networks remotely, but Zscaler’s platform offers a more secure connection without exposing an entire internal network, is easier to configure and is less costly to operate at scale. While the trend toward connecting remote devices over the Internet backbone remains firmly in motion, the stock appreciated over 300% in 2020, quickly outgrowing our small-cap market cap mandate, and we ended our successful campaign.”

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Our calculations show that Zscaler, Inc. (NASDAQ: ZS) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, Zscaler, Inc. was in 35 hedge fund portfolios, compared to 26 funds in the third quarter. ZS delivered a -5.09% return in the past 3 months.

The top 10 stocks among hedge funds returned 231.2% between 2015 and 2020, and outperformed the S&P 500 Index ETFs by more than 126 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Here you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

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Disclosure: None. This article is originally published at Insider Monkey.