Headwaters Capital’s Top Contributor: Bentley Systems Inc. (BSY)

Headwaters Capital, an investment management firm, published its second quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly portfolio net return of 8.3% was recorded by the fund for the second quarter of 2021, outperforming the Russell Mid Cap Index that delivered a 7.5% return for 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 Headwaters Capital, the fund mentioned Bentley Systems, Incorporated (NASDAQ: BSY), and discussed its stance on the firm. Bentley Systems, Incorporated is an Exton, Pennsylvania-based software company, that currently has a $17.6 billion market capitalization. BSY delivered a 57.84% return since the beginning of the year, while its 3-month revenues are up by 27.93%. The stock closed at $63.94 per share on July 12, 2021.

Here is what Headwaters Capital has to say about Bentley Systems, Incorporated in its Q2 2021 investor letter:

Top Contributor: Bentley Systems (BSY) +38%. Bentley is the leading provider of computer-aided design (CAD) software for infrastructure engineers. BSY’s software is a critical tool for engineers during all phases of the infrastructure lifecycle beginning with design and construction and continuing post-construction with ongoing simulation and monitoring. BSY’s software is used for all types of infrastructure including roads, bridges, rail, utility (transmission and distribution, water, wastewater). BSY’s stock outperformed during the quarter as the company would be a beneficiary of Biden’s proposed infrastructure bill that is forecast to double federal spending on infrastructure over the next 5 years. Approximately 2/3rds of BSY’s revenues come from the public sector, so BSY is well positioned to benefit from these higher spending levels. BSY has also increased both the size and pace of acquisitions during the first 6 months of 2021, which has been viewed favorably by the market as these acquisitions provide complementary software solutions to BSY’s already comprehensive software platform.”

Based on our calculations, Bentley Systems, Incorporated (NASDAQ: BSY) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. Bentley Systems, Incorporated was in 22 hedge fund portfolios at the end of the first quarter of 2021, compared to 19 funds in the fourth quarter of 2020. BSY delivered a -0.64% return in the past month.

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.

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