Baillie Gifford, a large-scale investment management firm in the UK, published its "Long Term Global Growth Fund" second quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly return of 13.59% was recorded by the fund for the second quarter of 2021, compared to the 7.53% return of its MSCI ACWI benchmark. 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 Baillie Gifford, the fund mentioned Pinduoduo Inc. (NASDAQ: PDD), and discussed its stance on the firm. Pinduoduo Inc. is a Shanghai, China-based agriculture-focused technology platform, that currently has a $114.8 billion market capitalization. PDD delivered a -48.44% return since the beginning of the year, while its 12-month returns are down by -0.21%. The stock closed at $91.61 per share on July 30, 2021.
Here is what Baillie Gifford has to say about Pinduoduo Inc. in its Q2 2021 investor letter:
"As many countries enjoy a relaxation of Covid restrictions, Mr Market is focussed on short-term beneficiaries of ‘the pleasure after the plague’. There are interesting parallels with the Roaring 20s here, but to our minds, they extend beyond post-pandemic hedonism. Much of the new wealth created in the 1920s was patchily distributed and accompanied by a pervasive sense that the older generation had let down younger people. In 1920, John F. Carter, an irate 23-year-old wrote “the older generation had certainly pretty well ruined this world before passing it on to us. We have been forced to live in an atmosphere of ‘tomorrow we die,’ and so, naturally, we drank and were merry.”
In a similar vein, some of the greatest Growth opportunities are materialising from the companies that are shifting humankind towards more sustainable ways of consuming by driving efficiencies and eliminating surplus. Pinduoduo’s ‘farm to table’ platform is one example – cutting out huge waste in farm produce and short circuiting layers of infrastructure by matching Chinese food supply and demand through a group buying model. In a similar vein, Meituan is well on the way to developing China’s primary ‘Software as a Service’ ecosystem for food distribution which we believe has a strong chance of replacing wasteful wet markets as the primary channel for transacting in produce.
Pinduoduo’s share price pulled back following news that Chinese regulators are investigating possible anti-competitive activities by the country’s large online companies. However, Pinduoduo appears well placed to navigate such regulatory scrutiny in the long-term, helped in part by its community buying business model that benefits consumers, manufacturers and farmers alike. Its business fundamentals are stellar– the company remains the largest Chinese e-commerce platform, with over 820 million annual active users (surpassing Alibaba and JD.com), while revenue growth increased by 239% over the previous year. "
Based on our calculations, Pinduoduo Inc. (NASDAQ: PDD) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. PDD was in 56 hedge fund portfolios at the end of the first quarter of 2021, compared to 54 funds in the fourth quarter of 2020. Pinduoduo Inc. (NASDAQ: PDD) delivered a -31.60% 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.