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 Salesforce.com, inc. (NYSE: CRM) and discussed its stance on the firm. Salesforce.com, inc. is a San Francisco, California-based software company with a $268.8 billion market capitalization. CRM delivered a 23.33% return since the beginning of the year, while its 12-month returns are up by 10.91%. The stock closed at $279.68 per share on September 27, 2021.
Here is what RV Capital Management has to say about Salesforce.com, inc. in its Q2 2021 investor letter:
“Part 5: A New Investment in Salesforce.com
The assertion that mega caps can also be mispriced is a good segue to our second new investment in Salesforce.com. Salesforce is one of the largest software companies in the world with a market value of around US$ 250 bn. It is best known for its customer relationship management or “CRM” solution, known as its Sales Cloud. It has three additional clouds (“Service,” “Marketing” and “Commerce”) as well as a thriving platform business with both owned and 3rd party software solutions.
I first came across Salesforce in 2013. I was invested in Bechtle, a German company that provides companies with their in-house IT. I kept hearing about a strange new concept called “the Cloud” and wanted to get up to speed on the topic in case it was a risk to Bechtle. As a result, I picked up a copy of “Behind the Cloud”. It documents how Salesforce.com pioneered cloud-based software and revolutionised the software industry.
Since then, I have followed Salesforce from a distance and visited it several times in San Francisco. I did not consider it seriously as an investment though as for much of the period, I had not yet overcome my aversion to loss-making companies.
This changed in December last year when Salesforce announced the acquisition of Slack (a former investment of the Business Owner Fund, described in my 2020 half-year letter) for US$ 27 bn. On the date of announcement, Salesforce’s market value fell by around US$ 20 bn. Effectively, the market was saying that Slack was almost worthless, which, as an enthusiastic owner of Slack, I disagreed with. Initially, I decided to keep our Slack stock and roll it into Salesforce (as part of the consideration was in Salesforce’s own stock). As Salesforce’s price fell further in the subsequent months, I bought its stock directly to make it a full-size position post the closing of the Slack acquisition…” (Click here to see the full text)
Pixabay/Public Domain
Based on our calculations, Salesforce.com, inc. (NYSE: CRM) ranks 15th in our list of the 30 Most Popular Stocks Among Hedge Funds. CRM was in 108 hedge fund portfolios at the end of the first half of 2021, compared to 91 funds in the previous quarter. Salesforce.com, inc. (NYSE: CRM) delivered an 11.65% 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.
