Alger, an investment management firm, published its “Alger Spectra Fund” second quarter 2021 investor letter – a copy of which can be downloaded here. During the quarter, the largest portfolio sector weightings were Information Technology and Consumer Discretionary. Class A shares of the Alger Spectra Fund underperformed the Russell 3000 Growth during the second quarter of 2021. 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 Alger Spectra Fund, the fund mentioned Microsoft Corporation (NASDAQ: MSFT), and discussed its stance on the firm. Microsoft Corporation is a Redmond, Washington-based technology company, that currently has a $2.1 trillion market capitalization. MSFT delivered a 29.99% return since the beginning of the year, extending its 12-month returns to 38.53%. The stock closed at $286.95 per share on August 11, 2021.
Here is what Alger Spectra Fund has to say about Microsoft Corporation in its Q2 2021 investor letter:
“Microsoft Corp. was among the top contributors to performance. Microsoft is a Positive Dynamic Change beneficiary of corporate America’s transformative digitization. Microsoft’s enterprise cloud product, Azure, is rapidly growing and accruing market share. Recently, Microsoft reported that Azure grew 50% during the past quarter.
This high-unit volume growth is a primary driver of the company’s higher share price, but Microsoft’s strong operating execution has enabled notable margin expansion that has also helped to increase forward earnings estimates. We believe Microsoft’s subscription-based software offerings and cloud computing services have a durable growth profile because they enhance customers’ growth initiatives and help them to diminish costs. Additionally, investors appreciate Microsoft’s strong free cash flow generation and its return of cash to shareholders in the form of dividends and share repurchases. Microsoft’s chief executive officer, furthermore, reiterated his comment from a few months back, when he said he expects technology spending as a percent of GDP to jump from about 5% today to 10% in a few years and that Microsoft is well positioned to capture market share.”
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Based on our calculations, Microsoft Corporation (NASDAQ: MSFT) ranks 2nd in our list of the 30 Most Popular Stocks Among Hedge Funds. MSFT was in 251 hedge fund portfolios at the end of the first quarter of 2021, compared to 258 funds in the fourth quarter of 2020. Microsoft Corporation (NASDAQ: MSFT) delivered an 18.94% 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.
