Wedgewood Partners, an investment management firm, published its second quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly portfolio return of 11.8% was recorded by the fund for the first half of 2021, outperforming the S&P 500 that delivered an 8.6% return for the same period, but slightly below the 11.9% gain of Russell 1000 Growth Index. 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 Wedgewood Partners, the fund mentioned PayPal Holdings, Inc. (NASDAQ: PYPL), and discussed its stance on the firm. PayPal Holdings, Inc. is a San Jose, California-based online payments system company, that currently has a $346.1 billion market capitalization. PYPL delivered a 25.80% return since the beginning of the year, extending its 12-month revenues to 69.41%. The stock closed at $294.63 per share on July 16, 2021.
Here is what Wedgewood Partners has to say about PayPal Holdings, Inc. in its Q2 2021 investor letter:
“PayPal registered +29% revenue growth (constant currency) on +46% growth in total payment volume of $285 billion which is on top of a +19% growth rate a year ago. The Company has been a key enabler for the digitization of commerce, a trend that has accelerated since the outbreak of COVID-19. PayPal’s platforms are approaching 400 million active accounts that average over 40 transactions per year. The ubiquity of PayPal’s platforms among online shoppers is an increasingly attractive piece of the value proposition to small and medium-size online businesses, helping drive higher conversion rates and sales while allowing the Company to raise prices and capture a portion of this value creation. We continue to own PayPal in size as a core position, given the exceptional returns and attractive position in the large and expanding e-commerce addressable market.”
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Based on our calculations, PayPal Holdings, Inc. (NASDAQ: PYPL) ranks 8th in our list of the 30 Most Popular Stocks Among Hedge Funds. PayPal Holdings, Inc. was in 143 hedge fund portfolios at the end of the first quarter of 2021, compared to 147 funds in the fourth quarter of 2020. PYPL delivered a 9.17% 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.
