1 Main Capital, an investment management firm, published its third-quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly net return of 9.7% was delivered by the fund for the third quarter of 2021, bringing the year-to-date return to 53.9%, compared to its benchmarks, through the first nine months of the year, the S&P 500 (SPX) and Russell 2000 (RTY) Indexes returned 15.9% and 12.4%, respectively. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.
1 Main Capital, in its Q3 2021 investor letter, mentioned ATI Physical Therapy, Inc. (NYSE: ATIP) and discussed its stance on the firm. ATI Physical Therapy, Inc. is a Bolingbrook, Illinois-based physical therapy services provider with a $790.5 million market capitalization. ATIP delivered a -62.53% return since the beginning of the year, while its 12-month returns are down by -58.98%. The stock closed at $4.02 per share on November 12, 2010.
Here is what 1 Main Capital has to say about ATI Physical Therapy, Inc. in its Q3 2021 investor letter:
“During the period, we also sold our opportunistic ATIP position soon after our Q2 letter went out, when the company’s results and outlook were significantly lower than expected, without a clear explanation for how the issues would be resolved.
Specifically, it sounds like the company cut into muscle when it took costs out during COVID, alienating its therapist base. In turn, many therapists are departing for other opportunities, leaving ATIP understaffed and unable to keep up with demand. When trying to replace these staff members, ATIP in many cases has had to offer above-market wages due to its poor reputation, meaning that its future revenues will come at lower margins than in the past.
A deteriorating margin would be a problem even for an unleveraged company. Unfortunately, ATIP also has a debt problem it must deal with since EBITDA is so much lower than it was prior to COVID. The most frustrating part of these developments is that the company appears to have purposely delayed disclosing them to investors until immediately after its de-SPAC was completed.
While I am frustrated by the way this investment played out, I can’t change what happens, only what I do about it. So, we exited our entire position at $1.16 per warrant. Today, they trade for less than $0.50 each.”
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Based on our calculations, ATI Physical Therapy, Inc. (NYSE: ATIP) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. ATIP was in 30 hedge fund portfolios at the end of the first half of 2021. ATI Physical Therapy, Inc. (NYSE: ATIP) delivered a -3.13% 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.
