Palm Capital, an investment management firm, published its third-quarter 2021 investor letter – a copy of which can be downloaded here. Over the three months ending 30 June 2021, our portfolio increased by 0.5% after management fees & trading expenses. Since the fund started, three and a half years ago, its portfolio has returned 14.3% per annum after management fees & expenses. Palm Capital has outperformed the MSCI World Index by 3.9% per annum while holding better businesses and buying them below their worth. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.
Palm Capital, in its Q3 2021 investor letter, mentioned Alibaba Group Holding Limited (NYSE: BABA) and discussed its stance on the firm. Alibaba Group Holding Limited is a Hangzhou, China-based e-commerce company with a $336.7 billion market capitalization. BABA delivered a -47.48% return since the beginning of the year, while its 12-month returns are down by -52.08%. The stock closed at $122.24per share on December 13, 2021.
Here is what Palm Capital, has to say about Alibaba Group Holding Limited in its Q3 2021 investor letter:
“Over the past few months, political and regulatory turmoil has caused sharp collapses in the share prices of certain Chinese companies and clients have been increasingly asking us why we don’t invest in the country.
When we’ve answered this question in the past, we’ve found it useful to use the example of Alibaba. On face value, Alibaba appears to be a phenomenal business. It is the world’s largest e-commerce company in the world’s fastest-growing major economy. The marketplaces it operates are the most highly visited in China pointing to seemingly unassailable network effect advantages. These are solidified by its substantial investments and partnerships in an unrivalled logistics network. The company also has a crucial early mover advantage in cloud computing giving it a scale advantage that may quickly take it out of reach of competitors. And relative to its growth, the share often appears to be cheap.
However, if you dig beneath the surface, the investment case becomes less clear.
Alibaba’s accounting is questionable and murky, and its disclosure is poor. The company’s corporate structure is an intricate web of over 1,200 separate entities. And a staggering 890 of these entities were formed or acquired in the three years ending 2020. A large portion of its revenue growth each year is from consolidation of acquisitions with little disclosure of just how much. Significant entities appear and disappear from the company’s disclosures from year to year with no explanation. And almost three-quarters of the company’s total retained earnings since its 2014 IPO is from asset write ups with little explanation to back these up.”
Pieter Beens / Shutterstock.com
Based on our calculations, Alibaba Group Holding Limited (NYSE: BABA) ranks 13th in our list of the 30 Most Popular Stocks Among Hedge Funds. BABA was in 115 hedge fund portfolios at the end of the third quarter of 2021, compared to 146 funds in the previous quarter. Alibaba Group Holding Limited (NYSE: BABA) delivered a -23.67% return in the past 3 months.
Last week, we also shared another hedge fund’s views on BABA in another article. You can find more than 100 investor letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q3 page.
Disclosure: None. This article is originally published at Insider Monkey.
