Oakmark Funds, an investment management firm, published its “Oakmark Global Select Fund” third quarter 2021 investor letter – a copy of which can be seen here. A return of 45.0% was reported by the fund in the third quarter of 2021, outperforming the MSCI World Index, which returned 28.8% for the same period. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.
Oakmark Funds, in its Q3 2021 investor letter, mentioned Alibaba Group Holding Limited (NYSE: BABA) and discussed its stance on the firm. Alibaba Group Holding Limited is a Hangzhou, China-based e-commerce company with a $445.5 billion market capitalization. BABA delivered a -31.80% return since the beginning of the year, while its 12-month returns are down by -45.37%. The stock closed at $158.73 per share on November 5, 2021.
Here is what Oakmark Funds has to say about Alibaba Group Holding Limited in its Q3 2021 investor letter:
“Chinese internet company Alibaba was a top detractor for both the quarter and the fiscal year ending September 30. Regulatory headwinds and heightened competition continued to challenge the company’s operating results. Earlier in 2021, the Chinese government fined Alibaba Group $2.8 billion—the largest antitrust penalty issued in the country’s history. The fine, which represents 4% of the company’s 2019 annual domestic revenue, was imposed because China’s State Administration for Market Regulation found that Alibaba’s merchant exclusivity requirements hindered competition. Later, the company’s share price plunged upon the release of fiscal full-year earnings, even though these were largely in line with our full-year estimates on an organic basis. Along with the earnings release, management announced it would reinvest all incremental profits in the current fiscal year, which disappointed investors. While this strategy will likely produce low or no near-term profit growth, management believes these investments will help grow the company’s user base over the long term. In addition, the cloud business grew more slowly than had been expected, which Alibaba attributed to a large global customer moving its non-China business to a competitor. While the company faces near-term challenges from regulatory pressures and a slowing macro environment, we believe it is meaningfully undervalued relative to our estimate of its intrinsic value.”
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Based on our calculations, Alibaba Group Holding Limited (NYSE: BABA) ranks 8th in our list of the 30 Most Popular Stocks Among Hedge Funds. BABA was in 146 hedge fund portfolios at the end of the first half of 2021, compared to 135 funds in the previous quarter. Alibaba Group Holding Limited (NYSE: BABA) delivered a -18.70% 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.
