Billionaire Chase Coleman’s Tiger Global Management was the best performing hedge fund during the pandemic year with more than $10.4 billion in returns for investors. While the tiger cub’s investments in communications and consumer discretionary sectors helped in generating massive returns, his strategy of holding big positions in software stocks played a key role in topping the hedge funds list last year. The stunning performance of software stocks is reflected from the 52% rally of iShares Expanded Tech-Software ETF (IGV), the closely watched software benchmark. The S&P 500 index grew just over 16.3% last year.
After some price correction during the first quarter, software stocks bounced backed strongly given the prospects of sustainability in revenue growth. Digitization and technological innovations have been making serious changes in how we were living and working. Further bolstering the demand for software stocks is the development of new edge technologies like AI (artificial intelligence), and innovations, like IoT, blockchain technology, and cloud services.
Julian Robertson’s tiger cub billionaire Chase Coleman grew his hedge fund from $25 million in seed capital to $41 billion worth of assets at the end of last year. The tech-focused hedge fund's 13F portfolio market value came in around $39 billion at the end of 2020. Chase Coleman likes to hold positions for the long-term instead of making bets on short-term speculations. The time held for the top ten positions averages around 9.10 quarters. His investment philosophy includes buying the best companies and shorting the worst performers.
Coleman's hedge fund initiated a position in 14 stocks and added to 14 existing positions in the fourth quarter. Indeed, the majority of these stock positions belong to the software industry. Datto Holding Corp. (NYSE: MSP), Agora, Inc. (NASDAQ: API), and Intuit Inc. (NASDAQ: INTU) are among the new software stock picks. The firm also added to its existing software stock holdings like Microsoft (NASDAQ: MSFT), ServiceNow (NASDAQ: NOW), and Snowflake Inc (NASDAQ: SNOW).
Besides 2020 performance, Chase Coleman, 45, has a two-decades-long market-beating returns history. The tiger cub, who worked with investing legends like Jr., John Griffin, Stephen Mandel, Philippe Laffont, Andreas Halvorsen, generated net compounded 21% return over the past twenty years from his flagship long-short fund. Moreover, Tiger Global Long Opportunities fund produced 22% compound annual returns since it first launched in 2013. Further bolstering Chase Coleman’s overall performance was gross returns of 33% from the firm’s private equity business.
While Chase Coleman's reputation remains intact, the same can’t be said of the hedge fund industry as a whole, as its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
10 Best Software Stocks To Buy According To Billionaire Chase Coleman
Let’s now start reviewing the 10 best software stocks to buy according to Chase Coleman:
Best Software Stocks To Buy According To Billionaire Chase Coleman
Chase Coleman’s Tiger Global Management raised the stake in DocuSign (NASDAQ: DOCU) by 491% to 1.77 million shares during the fourth quarter of last year. Shares of DocuSign surged 137% in the last twelve-month, driven by solid financial growth. Its Q4 revenue jumped 57% year over year to $430.9 million while earnings per share of $0.37 topped consensus estimates by $0.15. The company's Q1 revenue is projected to stay in the range of $432-$436 million.
DocuSign shareholders have witnessed an increase in hedge fund interest in recent months. The stock was in record 67 hedge funds’ portfolios at the end of the fourth quarter of 2020 compared to the previous all-time high of 62 hedge fund positions.
The shares of monitoring and analytics platform Datadog Inc. (NASDAQ: DDOG) offer a solid buying opportunity for new investors due to two reasons: the recent dip and aggressive growth strategies. Billionaire Chase also appears bullish on Datadog. His hedge fund held 4.7 million shares of the software company, accounting for 1.19% of the 13F portfolio. The company recently announced two acquisitions and expects to reach $825-$835 million in revenue this year.
Datadog has seen an increase in enthusiasm from smart money recently. Datadog was in 52 hedge funds’ portfolios at the end of December, compared to 42 funds a quarter earlier.
Although the tiger cub sold 20% of the stake in Zoom Video Communications (NASDAQ: ZM) during the fourth quarter, the video calling company is still ranked among the 10 best software stocks to buy according to Chase Coleman. Tiger Global Management held 1.44 million shares of Zoom Video Communications at the end of the fourth quarter. The share price of Zoom has been under pressure over the last couple of months due to easing social distancing policies and increasing competition. Nevertheless, the company’s strategy of diversifying its revenue base with the introduction of new products would help in enhancing investors' sentiments.
In the Q4 investor letter, Baron Opportunity Fund highlighted strong confidence in the future fundamentals of Zoom Video Communications. Here is what Baron Opportunity Fund stated:
“Zoom Video Communications, Inc. is a cloud-based software company providing a video-first platform for communication. Shares of Zoom declined during the fourth quarter on profit taking following the strong run in the stock because of accelerated pandemic-driven Zoom adoption, revenue growth, and free cash flow generation. We retain conviction as Zoom remains a leading player in disrupting the $100 billion unified communications market with its scalable, globally distributed, cloud-based, video-first offering, while its well-known brand (Zoom is now a verb!) should enable it to grow profitably as it takes market share.”
Chase Coleman’s New York-based hedge fund built a huge long position in the cloud-based data platform Snowflake Inc. (NASDAQ: SNOW) during the past two quarters. Snowflake's position weighted around 1.26% of the 13F portfolio of Coleman at the end of the fourth quarter. The shares of the cloud-based data platform fell almost 15% so far this year following a huge rally when it went public last year. SNOW is ranked seventh in the list of 10 best software stocks to buy according to Chase Coleman.
SNOW investors should be aware of a decrease in activity from the world’s largest hedge funds of late. Snowflake was in 54 hedge funds’ portfolios at the end of the fourth quarter of 2020 compared to the all-time high for this statistic of 59.
Shares of Salesforce managed to trade in the green so far in 2021 despite broader tech market selloff. The tiger cub has been holding a position in the developer of enterprise cloud computing solutions provider since 2017. Tiger Global Management held 2.28 million shares of CRM at the end of the fourth quarter valued above $500 million. Salesforce plans to expand its revenue base through investments in new products and acquisitions. The company recently announced to acquire a popular collaboration app provider Slack for nearly $28 billion.
In the Q4 investor letter, Oakmark Funds stated that Salesforce stock is trading at a significant discount. Here is what Oakmark Funds said:
“Salesforce was the final new portfolio addition. The company is executing a tried-and-true strategy in the software space of buying young, best-of-breed software companies and then driving these products into their massive installed base. Companies like Tableau, ExactTarget and Mulesoft have considerably more reach in the hands of Salesforce than they could have achieved as standalone companies. However, when Salesforce announced a deal to buy Slack Technologies, the market reduced Salesforce’s pre-announcement market capitalization by roughly $40 billion, effectively offering investors the opportunity to get Slack for free. We believe management should be given the benefit of the doubt. Slack has the potential to be a game-changing technology with a huge addressable market, and management’s track record on acquisitions has been superb. We estimate that the company’s shares now trade at a material discount to industry peer Microsoft, despite showing nearly twice the growth, giving investors the chance to own a top-tier software company at a bottom-tier multiple.”
