Baron Funds, an asset management firm, published its “Baron Growth Fund” second quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly return of 7.80% was delivered by the fund’s institutional shares for the Q2 of 2021, outperforming its primary benchmark, the Russell 2000 Growth Index, which rose to 4.88%, but below the S&P 500 Index that delivered an 8.55% return 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 American Well Corporation (NYSE: AMWL) and discussed its stance on the firm. American Well Corporation is a Boston, Massachusetts-based healthcare company with a $2.5 billion market capitalization. AMWL delivered a -58.71% return since the beginning of the year, and the stock closed at $10.56 per share on August 30, 2021.
Here is what Baron Funds has to say about American Well Corporation in its Q2 2021 investor letter:
“We exited modest positions in American Well Corporation during the quarter. We think that this sale exemplify the merits of maintaining small initial position sizes. We were initially excited by the long-term opportunities represented by the business and the valuations at which we were able to deploy capital. However, our ongoing and iterative due diligence efforts surfaced concerns regarding the sustainability of competitive advantages over our investment horizon. Additionally, we observed changes to incentive structures that potentially foreshadowed a future misalignment with shareholders. We were easily able to exit these modest positions and reallocate that capital to investments in which we have greater conviction that we believe offer more attractive risk-adjusted returns.”
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Based on our calculations, American Well Corporation (NYSE: AMWL) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. AMWL was in 20 hedge fund portfolios at the end of the first half of 2021, compared to 19 funds in the previous quarter. American Well Corporation (NYSE: AMWL) delivered a -18.04% 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.
