Baron Funds, an investment management company, released its “Baron FinTech Fund” second quarter 2023 investor letter. A copy of the same can be downloaded here. In the second quarter, the fund rose 5.29% (Institutional Shares) compared to a 5.78% gain for the FactSet Global FinTech Index (Benchmark) and an 8.74% gain for the S&P 500 index. During the second quarter, the Fund performed well but fell slightly short of the Benchmark. Positive returns were achieved by two-thirds of the holdings. In addition, please check the fund’s top five holdings to know its best picks in 2023.
Baron FinTech Fund highlighted stocks like Nu Holdings Ltd. (NYSE:NU) in the second quarter 2023 investor letter. Headquartered in Sao Paulo, Brazil, Nu Holdings Ltd. (NYSE:NU) offers digital banking platform and digital financial services. On August 18, 2023, Nu Holdings Ltd. (NYSE:NU) stock closed at $7.21 per share. One-month return of Nu Holdings Ltd. (NYSE:NU) was -8.27%, and its shares gained 59.16% of their value over the last 52 weeks. Nu Holdings Ltd. (NYSE:NU) has a market capitalization of $33.849 billion.
Baron FinTech Fund made the following comment about Nu Holdings Ltd. (NYSE:NU) in its second quarter 2023 investor letter:
“We initiated a position in Nu Holdings Ltd. (NYSE:NU) (dba Nubank), a Latin American digital bank with operations in Brazil, Mexico, and Colombia. Nubank was founded in 2014 with a mission to provide Brazilian consumers with better and more convenient access to financial products. The financial services industry in Brazil operates as an oligopoly, where the top five banks control a large majority of assets and deposits. This has historically led to high fees, poor customer service, and limited access to basic products such as credit cards and loans for the mass market. Nubank is disrupting this market via its digital distribution and intense focus on user experiences, which have enabled it to reach over 80 million registered users (almost half of the Brazilian adult population) in less than 10 years with very little marketing. We believe Nubank has four key competitive advantages driving its success: a user-friendly technology-driven platform, a track record of conservative credit underwriting, a low-cost funding base consisting mainly of retail deposits, and strong brand awareness. The company is led by co-founder and CEO David Vélez, who is also the company’s largest shareholder.
We have followed Nubank through its late-stage private financing rounds and IPO in 2021. We saw the company navigate a difficult COVID period with superior asset quality while achieving scale and profitability much faster than investors anticipated. The company swung to profitability in the first quarter of this year with a 10% ROE driven by 87% revenue growth and strong operating leverage. Nubank has been rapidly scaling its business while launching new products and entering new markets such as Mexico and Colombia. In Brazil, the company has already reached 10% share of the credit card market. We believe Nubank will achieve similar penetration in newer products and geographies given the attractiveness and convenience of its platform, thereby driving significant asset growth. We believe the company’s ROE will expand from 10% currently to 25% or 30% over the next few years driven by operating leverage and balance sheet optimization (better asset mix and higher leverage). We expect the combination of strong earnings growth and ROE expansion will drive meaningful share price appreciation over time.”
Nu Holdings Ltd. (NYSE:NU) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 44 hedge fund portfolios held Nu Holdings Ltd. (NYSE:NU) at the end of second quarter which was 38 in the previous quarter. In addition, please check out our hedge fund investor letters Q2 2023 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
