Argosy Investors, an investment management firm, published its second quarter 2021 investor letter – a copy of which can be downloaded here. A portfolio return of 16.5% was recorded by the fund for the second half of 2021, while the S&P 500 by comparison returned 15.3%. You can view the fund’s top 5 holdings to have an idea about their top bets for 2021.
In the Q2 2021 investor letter of Argosy Investors, the fund mentioned KAR Auction Services, Inc. (NYSE: KAR), and discussed its stance on the firm. KAR Auction Services, Inc. is a Carmel, Indiana-based used car dealers company, that currently has a $2.08 billion market capitalization. KAR delivered a -9.97% return since the beginning of the year, while its 12-month returns are up by 5.71%. The stock closed at $16.60 per share on August 02, 2021.
Here is what Argosy Investors has to say about KAR Auction Services, Inc. in its Q2 2021 investor letter:
“I went over my reasons for upping the ante on KAR in last quarter’s letter. Why am I now selling? I made a mistake of judgment. KAR’s business is challenged, and the IPO of ACV Auctions revealed their advantages compared to KAR. As a result, I sold, and of course the stock promptly went up almost 20% after a not-so-bad quarter. The short-term price action is fun to joke about, but when I see a stock that I already knew was facing secular growth challenges getting its lunch eaten by a fast-growing new upstart from Buffalo, NY, not exactly a hotbed of innovation, I decided to exit stage left. We will only know with hindsight whether this choice was correct or not, but I will definitely be watching ACVA’s progress relative to KAR.”
Photo by Dieny Portinanni on Unsplash
Based on our calculations, KAR Auction Services, Inc. (NYSE: KAR) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. KAR was in 22 hedge fund portfolios at the end of the first quarter of 2021, compared to 27 funds in the fourth quarter of 2020. KAR Auction Services, Inc. (NYSE: KAR) delivered a 15.33% 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.
