Fiduciary Management, an investment management firm, published its “International Equity Fund” second quarter 2021 investor letter – a copy of which can be downloaded here. The FMI International portfolios gained approximately 4.7% (currency hedged) and 4.8% (currency unhedged) in the period, respectively, which compares with an MSCI EAFE Index gain of 4.79% in local currency (LOC) and 5.17% in U.S. Dollars (USD). You can view the fund’s top 5 holdings to have an idea about their top bets for 2021.
In the Q2 2021 investor letter of Fiduciary Management, the fund mentioned SAP SE (NYSE: SAP), and discussed its stance on the firm. SAP SE is a Walldorf, Germany-based software company, that currently has a $175.7 billion market capitalization. SAP delivered a 14.18% return since the beginning of the year, while its 12-month returns are down by -8.09%. The stock closed at $146.39 per share on August 04, 2021.
Here is what Fiduciary Management has to say about SAP SE in its Q2 2021 investor letter:
“An idiosyncratic opportunity presented itself at SAP SE, which we purchased in February. SAP is one of the largest software companies in the world, with a focus on Enterprise Resource Planning (ERP), Customer Relationship Management and Human Resources. SAP can be characterized by strong customer relationships, a complex product set with high switching costs, a huge installed base, and significant recurring revenue (72% of sales moving to 85% by 2025). The company is integrating its product portfolio to provide a better user experience and migrating its on‐premise ERP customers to the Cloud. SAP’s plan calls for muted revenue growth and flat‐to‐slightly declining operating profit through 2022 as it goes through the transition, before accelerating to double‐digit growth from 2023 onward. Unlike the market, which is obsessed with near‐term earnings momentum (leading to the stock sell‐off), patience is our advantage. The transition to the Cloud should increase SAP’s revenue by over two times, provide better performance and functionality, and save customers money: a win‐win.”
Photo by Danial Igdery on Unsplash
Based on our calculations, SAP SE (NYSE: SAP) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. SAP was in 19 hedge fund portfolios at the end of the first quarter of 2021, compared to 14 funds in the fourth quarter of 2020. SAP SE (NYSE: SAP) delivered a 5.10% 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.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage.
Disclosure: None. This article is originally published at Insider Monkey.
