Polen Capital, an investment management firm, published its “Polen U.S. SMID Company Growth Fund” second quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly gross return of 12.02% was delivered by the fund for the second quarter of 2021, outperforming its Russell 2500 Growth benchmark that delivered a 6.04% gain 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 Polen Capital, the fund mentioned Farfetch Limited (NYSE: FTCH) and discussed its stance on the firm. Farfetch Limited is a London, United Kingdom-based online luxury fashion retail platform with a $14.5 billion market capitalization. FTCH delivered a -35.40% return since the beginning of the year, while its 12-month returns are up by 57.33%. The stock closed at $41.78 per share on September 7, 2021.
Here is what Polen Capital has to say about Farfetch Limited in its Q2 2021 investor letter:
“We also started a new position in Farfetch. Farfetch is the market-leading, global luxury fashion, e-commerce marketplace and is also a technology partner for many luxury brands and boutiques. The luxury fashion industry has been slow to adopt technology, and ecommerce penetration is in the very low single digits today. Juxtapose this with the data that the luxury industry is growing at its fastest pace where digitization is the most well established (China and the U.S.). To us, it becomes clear that penetration will increase going forward, providing a massive secular tailwind for Farfetch. We believe Farfetch is particularly well-positioned to capitalize on this opportunity not only because they have a scale advantage, but also because the industry dynamics are such that trust and relationships are paramount. Farfetch has carefully cultivated partnerships with leading fashion brands like Chanel, Richemont, and Kering. Based on our research, we expect the company to grow intrinsic value at approximately a 30% CAGR going forward in our base case, but we also recognize that the business is highly innovative and in the early stages of penetrating a large total addressable market, making the range of possible outcomes wide, albeit heavily skewing to our benefit.”
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Based on our calculations, Farfetch Limited (NYSE: FTCH) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. FTCH was in 63 hedge fund portfolios at the end of the first half of 2021, compared to 57 funds in the previous quarter. Farfetch Limited (NYSE: FTCH) delivered a -9.73% 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.
