Baron Funds, an asset management firm, published its “Baron Discovery Fund” third quarter 2021 investor letter – a copy of which can be downloaded here. A decline of 5.02% was delivered by the fund’s institutional shares for the third quarter of 2021, which was 0.63% better than the Russell 2000 Growth Index (the “Benchmark”). You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.
Baron Discovery Fund, in its Q3 2021 investor letter, mentioned SmartRent, Inc. (NYSE: SMRT) and discussed its stance on the firm. SmartRent, Inc. is a Scottsdale, Arizona-based smart home automation solution provider with a $2.1 billion market capitalization. SMRT delivered a -8.63% return for the past month and it closed at $10.90 per share on November 16, 2021.
Here is what Baron Funds has to say about SmartRent, Inc. in its Q3 2021 investor letter:
“We acquired shares of SmartRent, Inc. during the quarter. SmartRent has emerged as a category-leading enterprise grade software company providing a fully integrated solution to the real estate industry. The core product is built around smart access or keyless entry. Products enable resident access, self-guided tours, smart parking, video intercom, package delivery as well as community Wi-Fi, leak detection, and temperature control management that will lower cost, mitigate risk, and increase rents for multi-family property owners. Cost savings range from 20% to 30% on utilities and 20% to 50% on leasing costs. In exchange, SmartRent charges a low recurring base monthly fee per apartment. No enterprise-level solution existed prior to SmartRent and its digital amenities are elevating the resident and landlord experience.
SmartRent has over 200,000 units deployed today with over 450,000 total users. The company has experienced zero churn and importantly has developed strategic partnerships with 15 of the top 20 institutional apartment owners. In addition, the company has a pipeline of 600,000 committed units and a 3.5 million unit opportunity within its existing customer base, which could yield a $2 billion recurring revenue stream over time just with property owners who are already existing customers. We believe there is a path to achieve $450 million of software revenue from $25 million today yielding roughly $200 million of run-rate recurring cash flow (versus negligible cash flow today) over the near term given the in-place customer commitments and future sales wins, which could lead to the stock price doubling. In addition, we believe there is upside potential longer term through emerging initiatives that could open up several exciting adjacent growth verticals (e.g., international, student and senior housing). Lastly, with approximately $500 million of cash, we expect M&A opportunities to layer on additional services to augment growth both to the product offering as well as from increased monthly pricing.”
Photo by Karsten Winegeart on Unsplash
Based on our calculations, SmartRent, Inc. (NYSE: SMRT) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. SmartRent, Inc. (NYSE: SMRT) delivered a -7.63% 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.