Wedgewood Partners: “Facebook (FB) Continues to Grow Expenses at an Exceptionally Robust Rate”

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 Facebook, Inc. (NASDAQ: FB), and discussed its stance on the firm. Facebook, Inc. is a Menlo Park, California-based social networking service company, that currently has a $967.3 billion market capitalization. FB delivered a 24.89% return since the beginning of the year, extending its 12-month revenues to 40.96%. The stock closed at $341.16 per share on July 16, 2021.

Here is what Wedgewood Partners has to say about Facebook, Inc. in its Q2 2021 investor letter:

Facebook’s first quarter 2021 revenues grew an astonishing +48% (constant currency), compared to +18% growth from a year ago. Unlike Alphabet, , growing headcount +26% more recently. Facebook has pulled forward several years of investment during the past few years and has had a particular focus on content curation capabilities with the goal of making its platforms safer and more accessible for brands and users. The Company should be able to increasingly automate these functions as its heavy investments in artificial intelligence, especially machine learning, yield productivity benefits. The stock continues to trade at a meaningful discount compared to other companies that are growing revenues this quickly and finished the quarter as our second largest weighting.”


Photo by Timothy Hales Bennett on Unsplash

Based on our calculations, Facebook, Inc. (NASDAQ: FB) tops our list of the 30 Most Popular Stocks Among Hedge Funds. Facebook, Inc. was in 257 hedge fund portfolios at the end of the first quarter of 2021, compared to 242 funds in the fourth quarter of 2020. FB delivered an 11.42% 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, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 10 best battery 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.