Is Focus Financial Partners (FOCS) A Smart Long-Term Buy?

Wasatch Global Investors, an investment management firm, published its “Wasatch Small Cap Growth Fund” second quarter 2021 investor letter – a copy of which can be downloaded here. A return of 6.32% was recorded by the fund’s investor class for the Q2 of 2021, outperforming the benchmarks, Russell 2000 Growth Index, that increased 3.92%, and the Russell 2000 Index that rose to 4.29% for the same period. You can take a look at the fund’s top 5 holdings to have an idea about their top bets for 2021.

In the Q2 2021 investor letter of Wasatch Global Investors, the fund mentioned Focus Financial Partners Inc. (NASDAQ: FOCS) and discussed its stance on the firm. Focus Financial Partners Inc. is a United States-based wealth management services provider with a $3.5 billion market capitalization. FOCS delivered a 13.17% return since the beginning of the year, while its 12-month returns are up by 54.81%. The stock closed at $49.23 per share on September 20, 2021.

Here is what Wasatch Global Investors has to say about Focus Financial Partners Inc. in its Q2 2021 investor letter:

“We’re excited about several new portfolio holdings in the Fund. For example, during the second quarter, we purchased Focus Financial Partners, Inc. (FOCS). Focus Financial provides holistic wealthmanagement services. The company offers financial planning, asset allocation, asset management and tax preparation. What we like most about Focus Financial is that the company is taking ownership stakes in independent, ultra-high-networth investment advisory firms around the world. This is attractive for the advisory firms because they: (1) get to continue operating with significant independence; (2) gain access to an expanded menu of top-notch products and services for clients; (3) get to maintain their legacy as a highquality firm; and (4) receive immediate cash in exchange for giving up some ownership. Focus Financial has seen extremely strong revenues and earnings because it has the infrastructure to rapidly grow the investment advisory firms that were started by talented entrepreneurs. Of all businesses, advisory firms achieve some of the best economies of scale due to the fact that fixed costs pale in comparison to asset-based revenues.”

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Based on our calculations, Focus Financial Partners Inc. (NASDAQ: FOCS) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. FOCS was in 19 hedge fund portfolios at the end of the first half of 2021, compared to 23 funds in the previous quarter. Focus Financial Partners Inc. (NASDAQ: FOCS) delivered a -9.49% 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.

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