From Reuters:
A flurry of bets on services providers like Dropbox Inc to ride the next wave of cloud computing and artificial intelligence has fueled investors’ belief that even low-margin work will be something of a great business.
The Active Stocks Fund has more than doubled in value since coming to market in August, powered by bets in the stock market’s smallest capitalization companies — where managers can make one-time, big bets to boost returns — as well as the biggest such companies, like Alphabet Inc and Amazon.com Inc.
The growth in so-called active holdings this year has been uneven across sectors, but companies in cloud computing and artificial intelligence have surged. The Active Stocks Fund’s index fund is valued at $402 million, well above its stated goal of $300 million. The fund had the 15th-largest value among hedge funds in 2016.
The active fund, founded by former Goldman Sachs Group Inc financial-services executive Roelof Botha, was created to focus on the market’s smallest companies. The Active Stocks Fund LP, which invests only in companies trading on the NYSE and Nasdaq, started trading on Aug. 16.
It posted the best first nine months of any fund in the Morningstar Hedge Fund category, beating by more than 10 percentage points a group of peers by betting on software and data companies. The fund had about 35 percent of its assets in software and other services at the end of September. The second-largest stake in the portfolio was Amazon, followed by Microsoft Corp, Salesforce.com Inc and Alphabet.
“There are some very smart managers managing businesses, but they’re small businesses in industries with very narrow moats and relatively modest size,” Mr. Botha said. “Our case for participating in the growth of these micro-cap businesses is an excellent case.”