Alphyn Capital Management, an investment management firm, published its first-quarter 2022 investor letter – a copy of which can be downloaded here. A quarterly portfolio net return of -13.4% was recorded by the fund for the first quarter of 2022, compared to its benchmark, the S&P 500 TR Index which delivered a -4.6% return for the same period. Try to spend some time taking a look at the fund’s top 5 holdings to be informed about their best picks for 2022.
In its Q1 2022 investor letter, Alphyn Capital Management mentioned Fairfax Financial Holdings Limited (NYSE:FRFHF) and explained its insights for the company. Founded in 1951, Fairfax Financial Holdings Limited (NYSE:FRFHF) is a Toronto, Canada-based financial insurance company with a $16.1 billion market capitalization. Fairfax Financial Holdings Limited (NYSE:FRFHF) delivered a 10.60% return since the beginning of the year, while its 12-month returns are up by 19.36%. The stock closed at $544.28 per share on April 28, 2022.
Here is what Alphyn Capital Management has to say about Fairfax Financial Holdings Limited (NYSE:FRFHF) in its Q1 2022 investor letter:
“Fairfax’s business model advantages were on display as the company disclosed record net profits of $3.4bn for 2021 and grew book value per share by 34%. The company’s insurance operations collect money upfront in premiums but pay out claims over several years. The difference between premiums collected and claims paid is called the float. Float is “other people’s money” that Fairfax can invest for its benefit. Float is a cheap, safe form of “synthetic leverage.” Unlike regular debt, float cannot be margin called, and unlike debt, Fairfax pays no interest on its float so long as the insurance operations are profitable, which they have been for the past 16 years. In 2021, Fairfax earned $801m in underwriting profits.
Fairfax had a $48bn average investment portfolio in 2021, of which $25bn was funded by float. While the investment returns on the total portfolio were 9.4%, the tremendous leverage afforded by float (combined with insurance profits, share buybacks, and after costs) produced a 34% growth in book value per share. These results are more impressive considering half the investment portfolio was allocated to cash and short-term bonds. Float should drive attractive returns for years to come. Float per share has compounded at 19% since inception and 10% over the last five years. Moreover, Fairfax achieved this with disciplined underwriting standards.
Fairfax is undervalued at only 0.7x book. In contrast, Berkshire Hathaway offered to acquire Allegheny for approximately 1.25x book, and Markel trades at a similar valuation. Fairfax’s suboptimal 5-year investment performance caused the negative sentiment. Contributing factors include the company’s strict adherence to a value-investing discipline, focus on underperforming emerging markets, and loss-making macro hedges. However, all of these are temporary; as the company demonstrated in 2021, it can still produce attractive returns.”
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Our calculations show that Fairfax Financial Holdings Limited (NYSE:FRFHF) fell short and didn’t make it on our list of the 30 Most Popular Stocks Among Hedge Funds. Fairfax Financial Holdings Limited (NYSE:FRFHF) delivered a 14.21% return in the past 3 months. In March 2022, we also shared another hedge fund’s views on Fairfax Financial Holdings Limited (NYSE:FRFHF) in another article. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters 2022 Q1 page.
Disclosure: None. This article is originally published at Insider Monkey.
