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Here’s Why Cloudflare (NET) Became One of Alger’s Top Q2 Performers

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Alger, an investment management firm, published its “Alger Mid Cap Focus Fund” second quarter 2021 investor letter – a copy of which can be downloaded here. During the quarter, the largest portfolio sector weightings for the fund were Information Technology and Industrials. The largest sector overweight was Industrials. Class Z shares of the Alger Mid Cap Focus Fund underperformed the Russell Midcap Growth Index during the second quarter of 2021. 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 Alger, the fund mentioned Cloudflare, Inc. (NYSE: NET), and discussed its stance on the firm. Cloudflare, Inc. is a San Francisco, California-based web infrastructure and website security company, that currently has a $37.9 billion market capitalization. NET delivered a 61.21% return since the beginning of the year, while its 12-month returns are up by 231.17%. The stock closed at $118.82 per share on August 06, 2021.

Here is what Alger has to say about Cloudflare, Inc. in its Q2 2021 investor letter:

"Cloudflare provides a broad range of network services to businesses of all sizes across the world. Cloudflare's intelligent global network spans more than 200 cities in over 100 countries. It offers network security, performance and reliability to a growing portion of global web traffic with over 17% of global internet requests going through Cloudflare. The company's serverless network design allows this global network to be a key component layer as new developments for edge computing, 5G and the Internet of Things increase the importance of secure, reliable edge networks.Cloudflare stock outperformed in the second quarter following a strong earnings report for the first three months of this year during which the company reaccelerated revenue growth. This revenue reacceleration was driven by momentum in Cloudflare's large customer segment. Cloudflare added a record number of large customers who now account for more than half of Cloudflare's total revenue. We think that Cloudflare is currently still in the early stages of market penetration, which means it has potential to maintain high levels of growth within its large customer segment as the company continues to innovate within its product offerings to better serve these large, complex customers. Cloudflare's leadership in product innovation was further validated by the company's second quarter announcement of a new partnership with NVIDIA Corporation to develop Al-based applications on Cloudflare's edge network."

15 biggest Canadian software companies
15 biggest Canadian software companies

Copyright: welcomia / 123RF Stock Photo

Based on our calculations, Cloudflare, Inc. (NYSE: NET) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. NET was in 45 hedge fund portfolios at the end of the first quarter of 2021, compared to 60 funds in the fourth quarter of 2020. Cloudflare, Inc. (NYSE: NET) delivered a 77.71% 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.