Baron Funds, an asset management firm, published its “Baron Small Cap Fund” second quarter 2021 investor letter – a copy of which can be downloaded here. A return of 6.37% was delivered by the fund’s institutional shares for the Q2 of 2021, trailing the S&P 500 Index, which appreciated 8.55% and modestly outperforming the Russell 2000 Growth Index which rose 3.92% for the same period. 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 Baron Funds, the fund mentioned Endava plc (NYSE: DAVA) and discussed its stance on the firm. Endava plc is a London, United Kingdom-based software company with an $8.1 billion market capitalization. DAVA delivered a 74.59% return since the beginning of the year, while its 12-month returns are up by 139.76%. The stock closed at $134.47 per share on August 30, 2021.
Here is what Baron Funds has to say about Endava plc in its Q2 2021 investor letter:
“Endava plc is a pure-play digitally native IT services company, offering products and strategies to help its clients with digital transformation initiatives. Endava’s business is snapping back very fast from the pandemic, with organic sales growing 15% in the last quarter and projections of over 30% for the upcoming period. Endava is growing its business with both its existing clients with whom they have deep relationships and expanding its base of new clients. Endava has done well to meet elevated demand by expanding its delivery footprint through recent M&A. The company’s deep domain expertise in high-growth end markets such as payments, tech, and media/telecom is providing strong tailwinds, and we believe the company can continue to grow organically over 20% per year while integrating strategic acquisitions to expand its base of operations.”
Photo by Danial Igdery on Unsplash
Based on our calculations, Endava plc (NYSE: DAVA) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. DAVA was in 16 hedge fund portfolios at the end of the first half of 2021, compared to 9 funds in the previous quarter. Endava plc (NYSE: DAVA) delivered a 29.31% 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.
