Fiduciary Management, an investment management firm, has released its Q2 2021 “International Equity Fund” letter to investors – a copy of which can be downloaded here. The IMF International portfolios gained approximately 4.7% (currency hedged) and 4.8% (currency unhedged) during the period, respectively, which compares to a gain in the MSCI EAFE index of 4 , 79% in local currency (LOC) and 5.17% in US dollars (USD). You can check out the top 5 holdings of the fund to get an idea of their top bets for 2021.
In Fiduciary Management’s Q2 2021 letter to investors, the fund mentioned SAP SE (NYSE: SAP) and discussed its position on the company. SAP SE is a software company based in Walldorf, Germany, which currently has a market capitalization of $ 175.7 billion. SAP has achieved a 14.18% year-to-date return, while its 12-month returns are down -8.09%. The stock closed at $ 146.39 per share on August 4, 2021.
Here’s what Fiduciary Management has to say about SAP SE in its Q2 2021 letter to investors:
“A unique opportunity presented itself to SAP SE, which we bought in February. SAP is one of the world’s largest software companies, specializing in enterprise resource planning (ERP), customer relationship management, and human resources. SAP can be characterized by strong customer relationships, a complex product mix with high switching costs, a huge installed base, and high recurring revenue (72% of sales will grow to 85% by 2025). The company is integrating its product portfolio to provide a better user experience and migrating its on-premise ERP customers to the cloud. SAP’s plan foresees moderate revenue growth and steadily to slightly lower operating profit through 2022 as the transition progresses, before accelerating to double-digit growth from 2023 Unlike the market, which is obsessed with short-term earnings dynamics (leading to stock sell-off), patience is our advantage. Moving to the cloud is expected to further increase SAP revenue, deliver better performance and functionality, and save customers money – a win-win solution. “
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Based on our calculations, SAP SE (NYSE: SAP) was unable to land a spot on our list of the 30 most popular stocks among hedge funds. SAP was in 19 hedge fund portfolios at the end of the first quarter of 2021, compared to 14 funds in the fourth quarter of 2020. SAP SE (NYSE: SAP) has generated a return of 5.10% in the last 3 months.
The reputation of hedge funds as savvy investors has been tarnished over the past decade, as their hedged returns could not keep up with the unhedged returns of stock indices. Our research has shown that small cap hedge fund stock selection managed to beat the market by double digits every year between 1999 and 2016, but the margin for outperformance has shrunk in recent years. Nonetheless, we were still able to identify in advance a select group of hedge funds that have outperformed S&P 500 ETFs by 115 percentage points since March 2017 (see details here). We were also able to identify in advance a select group of hedge funds that underperformed the market by 10 percentage points per year between 2006 and 2017. Interestingly, the margin of underperformance of these stocks has increased in recent years. Investors who are long in the market and short on these stocks would have reported more than 27% per year 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 originally appeared on Insider Monkey.