Dev Kantesaria’s Valley Forge Capital is a long-focused equity investment firm that was founded in 2007. The fund uses a bottom-up, fundamental approach to uncover well-managed companies with strong organic growth potential that can deliver compounding value to its clients for years to come. The fund maintains a highly concentrated portfolio of high conviction ideas and has close to $1 billion in assets under management.
Given its small portfolio, its returns have fluctuated dramatically in recent years, with massive gains of 51.2% and 34.3% in 2019 and 2017 respectively, while its 2015, 2016, and 2018 returns were far more modest (including a 5.62% loss in 2018). The fund’s overall performance has been solid, with compound annual returns of 14.97%.
It should be noted that Valley Forge Capital has no relation to Valley Forge Asset Management, an investment manager that was fined $500,000 by the SEC in 2019 and was forced to return $5 million to its clients due to deceptive practices that it conducted between 2013 and 2016. That company’s name was later changed to Sterling Advisors.
That aside, let’s check out the favorite stocks in Valley Forge Capital’s highly concentrated portfolio, all of which happen to be finance-related.
Visa Inc (NYSE:V), Visa Electron, Card, MasterCard, Cards, Credit, bank
- Shares Owned (as of June 30): 569,529 (+27% quarter-over-quarter) - Value of Holding (as of June 30): $156.47 million
- Q3 Return: 5.50%
Valley Forge Capital is a big fan of the credit ratings agencies, with the biggest position in its portfolio belonging to Moody’s Corporation (NYSE:MCO), a company that is about to undergo some serious upheaval with the transition to a new CEO underway and a newly purchased company, Acquire Media, to integrate. Robert Fauber, Moody’s current COO, will take over the reins as President and CEO on January 1, 2021.
Hedge fund ownership of Moody’s surged to a new all-time high at the end of the second quarter among the funds tracked by Insider Monkey, jumping by 22% from the previous quarter and having doubled over the past two years. Billionaire Warren Buffett has been a longtime shareholder of the company, dating back to 2000.
- Shares Owned (as of June 30): 340,278 - Value of Holding (as of June 30): $142.25 million
- Q3 Return: 1.76%
As with fellow credit ratings group Moody’s, hedge fund ownership of Fair Isaac Corporation (NYSE:FICO) had more than doubled recently, between mid-2018 and Q3 2019. However, it’s been a different story in 2020, with a 20% drop in ownership. Valley Forge is the most bullish hedge fund on FICO in terms of portfolio allocation, with just over 17% of the value of its 13F portfolio invested in the stock.
Fair Isaac recently announced that it will cut 3.5% of its workforce, or about 140 employees, as it seeks to cut costs from some of the weaker areas of its business. The overall cost cutting moves have been praised by analysts, including Jefferies’ Surinder Thind, who predicts the moves could boost Fair Isaac’s 2021 adjusted EPS by 4-5%.
- Shares Owned (as of June 30): 441,150 (+152%) - Value of Holding (as of June 30): $130.45 million
- Q3 Return: 14.36%
Valley Forge made its biggest Q2 move in Mastercard, increasing its share ownership by more than 150%. There’s been a 50% surge in hedge fund ownership of Mastercard Incorporated (NYSE:MA) over the last year following several years of relatively little movement on that front.
Mastercard and rival Visa (below) control more than 90% of the card payments industry outside of China, an impressive feat that has pushed their collective market caps into the $800 billion range. However, with Google and Apple both unleashing their own mobile payment systems recently, it remains to be seen how well Visa and Mastercard will be able to hold off the next fintech wave.
- Shares Owned (as of June 30): 482,922 - Value of Holding (as of June 30): $93.29 million
- Q3 Return: 3.52%
Visa ranked as the sixth-most popular stock among the hedge funds tracked by Insider Monkey as of June 30, with 154 of those funds owning Visa shares. 147 funds were shareholders of Visa’s longtime rival Mastercard, which ranked seventh. While Visa has historically been more popular among hedge funds, the gap has been closing over the past six quarters.
The Visa/Mastercard duopoly has come under fire in Britain for what have been deemed the excessive fees which retailers have increasingly been forced to contend with as card payments become the norm over cash during the pandemic. The British Retail Consortium found that credit cards carried transaction costs for retailers that were more than three times greater than debit cards at an average of $0.24.
- Shares Owned (as of June 30): 115,741 (+23%) - Value of Holding (as of June 30): $34.28 million
- Q3 Return: 10.14%
Lastly is Intuit Inc. (NASDAQ:INTU), the tax software and accounting firm, which Valley Forge Capital bought 21,100 shares of during Q2. Hedge fund ownership of Intuit jumped by nearly 40% last year, but has dipped ever so slightly in 2020, remaining close to record high levels.
Intuit has surged by over 80% from its coronavirus low point and looks poised for double-digit revenue growth and equally strong EPS growth over the next three years. Morgan Stanley analyst Keith Weiss believes Intuit can improve its operating margins by 125 basis points annually during that period as it shifts from a customer acquisition strategy to one of per customer revenue growth.
The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds' poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.
Video: Top 5 Stocks Among Hedge Funds
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Disclosure: None. This article is originally published at Insider Monkey.
