Ensemble Capital, an investment management firm, published its third-quarter 2021 investor letter – a copy of which can be downloaded here. In the letter, the fund discussed why they see so much new value being created in the years ahead, the value that their portfolio of companies is helping to develop. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.
Ensemble Capital, in its Q3 2021 investor letter, mentioned Alphabet Inc. (NASDAQ: GOOG) and discussed its stance on the firm. Alphabet Inc. is a Mountain View, California-based multinational technology conglomerate holding company with a $1.8 trillion market capitalization. GOOG delivered a 62.07% return since the beginning of the year, while its 12-month returns are up by 85.01%. The stock closed at $2,833.50 per share on October 15, 2021.
Here is what Ensemble Capital has to say about Alphabet Inc. in its Q3 2021 investor letter:
“Google: The combination of COVID’s acceleration of digital advertising spending, much improved execution in its cloud business, and very strong double-digit economic growth have all come together to supercharge Alphabet’s growth this year, with second quarter revenue growth of 62%. Compared to the second quarter of 2019, revenue grew 26% compounded over the two years. The scale of growth at Google is incredible, adding $24 billion in sales in the quarter over the year ago period, substantially beating Wall Street expectations. YouTube was particularly strong with advertising revenue growth of 84% as consumer engagement growth was complemented by advertising dollars shifting online from traditional TV. In addition, the Cloud business has really shown strong, sustained momentum under the leadership of its CEO Tom Kurian, who has done a tremendous job in the business over the last three years. The stock rose 10% in the quarter and is up 54% year-to-date.”
Photo by Kai Wenzel on Unsplash
Based on our calculations, Alphabet Inc. (NASDAQ: GOOG) ranks 7th in our list of the 30 Most Popular Stocks Among Hedge Funds. GOOG was in 155 hedge fund portfolios at the end of the first half of 2021, compared to 159 funds in the previous quarter. Alphabet Inc. (NASDAQ: GOOG) delivered a 9.83% 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, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV 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.
