RV Capital Management, an investment management firm, published its second-quarter 2021 investor letter – a copy of which can be downloaded here. The NAV of the Business Owner Fund was €994.14 as of the end of the second quarter. The NAV increased 14.0% since the start of the year and 901.9% since its inception on 30 September 2008. The compound annual growth rate since inception is 19.8%. 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 RV Capital Management, the fund 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 $407.8 billion market capitalization. BABA delivered a -35.39% return since the beginning of the year, while its 12-month returns are down by -45.70%. The stock closed at $150.18 per share on September 27, 2021.
Here is what RV Capital Management has to say about Alibaba Group Holding Limited in its Q2 2021 investor letter:
“The most consequential capital allocation decision in the first half-year was to increase our investment China by purchasing a new position in Alibaba.
I wrote about China in my 2019 half-year letter but given the heightened pessimism in the West today around China, I thought it was worth updating you on my thinking before getting to the discussion of our new investment in Alibaba.
I am conscious that the segue from a discussion on humility to one on China may be jarring. There are, for sure, many people better placed than me to discuss China. I hope, though, that there is value in the perspective of an informed outsider who has invested through several market panics in the past.
What Just Happened?
Over recent months, there has been a growing sense of pessimism bordering on panic about China and its internet companies. From peak in February to trough, aggregate paper losses of the largest Chinese Internet stocks have exceeded US$ 1 trillion.
The roots of the panic can be traced back to last November. Jack Ma, Alibaba’s iconic founder and major shareholder in Ant Group, gave a speech which was critical of financial regulation in China. Shortly afterwards, Ant Group withdrew its IPO plan, giving rise to fears that the Chinese government was turning its back on the market economy. Since then, regulation has spread to other sectors and increased in both frequency and intensity, heightening these fears…” (Click here to see the full text)
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Based on our calculations, Alibaba Group Holding Limited (NYSE: BABA) ranks 8th in our list of the 30 Most Popular Stocks Among Hedge Funds. BABA was in 146 hedge fund portfolios at the end of the first half of 2021, compared to 135 funds in the previous quarter. Alibaba Group Holding Limited (NYSE: BABA) delivered a -34.32% 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.
