Alger, an investment management firm, published its “Alger Small Cap Focus Fund” third quarter 2021 investor letter – a copy of which can be downloaded here. During the third quarter, the largest portfolio sector weightings were Health Care and Information Technology. The largest sector overweight was Health Care. The portfolio had no exposure to the Financials, Materials, Real Estate, or Utilities sectors. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.
Alger, in its Q3 2021 investor letter, mentioned Paycom Software, Inc. (NYSE: PAYC) and discussed its stance on the firm. Paycom Software, Inc. is an Oklahoma City, Oklahoma-based online payroll and human resource technology provider with a $32.2 billion market capitalization. PAYC delivered an 18.48% return since the beginning of the year, while its 12-month returns are up by 37.87%. The stock closed at $535.82 per share on October 22, 2021.
Here is what Alger has to say about Paycom Software, Inc. in its Q3 2021 investor letter:
“Paycom Software, Inc. was among the top contributors to performance. Paycom Software is a leading provider of comprehensive, cloudbased human capital management (“HCM”) software delivered as software as a service (SaaS). Paycom provides functionality and data analytics that businesses need to manage the complete employment lifecycle, from recruitment to retirement, with a focus on businesses with 50 to 5,000 employees, which represent 72% of U.S. employees. Its HCM functions include talent acquisition, time and labor management, payroll, talent management and human resources. The stock outperformed as a result of the company reporting a robust second quarter that exceeded consensus expectations across key metrics, including its recurring revenue, despite a tight labor market. Paycom continues driving strong growth via its leading technology while the pandemic has created increased demand for its self-service capabilities for employees that are increasingly being embraced by businesses. Its best-in-class sales organization, which includes a dedicated team for smaller employers and direct sales reps for large companies also supported the company’s second quarter results. We believe the second quarter illustrates how Paycom is currently positioned to capture market share, deliver attractive revenue growth and profit margins, and producing upside earnings surprises.”
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Based on our calculations, Paycom Software, Inc. (NYSE: PAYC) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. PAYC was in 39 hedge fund portfolios at the end of the first half of 2021, compared to 46 funds in the previous quarter. Paycom Software, Inc. (NYSE: PAYC) delivered a 35.34% 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.
