Baron Funds, an asset management firm, published its “Baron Small Cap Fund” second quarter 2021 investor letter – a copy of which can be downloaded here. A return of 6.37% was delivered by the fund’s institutional shares for the Q2 of 2021, trailing the S&P 500 Index, which appreciated 8.55% and modestly outperforming the Russell 2000 Growth Index which rose 3.92% 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 Baron Funds, the fund mentioned Array Technologies, Inc. (NASDAQ: ARRY) and discussed its stance on the firm. Array Technologies, Inc. is an Albuquerque, New Mexico-based solar tracking systems manufacturer with a $2.5 billion market capitalization. ARRY delivered a -55.78% return since the beginning of the year, and it closed at $19.07 per share on August 31, 2021.
Here is what Baron Funds has to say about Array Technologies, Inc. in its Q2 2021 investor letter:
“Array Technologies, Inc. is a leading manufacturer of utility-scale solar trackers. Shares fell significantly when the company withdrew guidance for the year due to dramatically increased steel prices and shipping costs, which they will not be able to pass on to their customers. The increased costs are causing a delay in some projects, and lower margins on present business. The near-term issues surprised investors and came shortly after the company had done a secondary offering, so management has a credibility problem. We continue to believe that the end market will be much bigger, however we are now less certain about Array’s long-term market share and margin profile. We sold some of our position and are closely monitoring the critical variables.”
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Based on our calculations, Array Technologies, Inc. (NASDAQ: ARRY) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. ARRY was in 18 hedge fund portfolios at the end of the first half of 2021, compared to 30 funds in the previous quarter. Array Technologies, Inc. (NASDAQ: ARRY) delivered a 20.70% 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.
