Ensemble Capital recently published its 2022 Q2 investor letter, a copy of which can be downloaded here. The fund lost nearly a third of its value this year and trails the S&P 500 Index. However, it posted positive annualized returns of 7% and 10% respectively over the last 3 and 5 years. You can take a look at the fund’s top 5 bets to have an idea about their best picks this year.
One of the main reasons for Ensemble’s poor 2022 performance is the underperformance of housing stocks this year like The Home Depot, Inc. (NYSE:HD). It is a home improvement retail corporation. The group of housing stocks in Ensemble’s portfolio declined an average of 32% this year and contributed 5 percentage points to the fund’s -33% return this year. The demand for housing loans is impacted by the accelerated Fed rate hike.
Here is what the fund specifically said about The Home Depot, Inc. (NYSE:HD):
“Home Depot is a very different business from NVR and First American. Its focus is on home remodeling, not housing transactions. Historically, the level of interest rates has not had a material influence on demand for Home Depot’s products and services. With employment at very strong levels, households sitting on record levels of cash, home equity at all time highs, and existing homeowners having locked in low, fixed mortgage payments during 2020-2021, we expect remodel demand to remain solid. Certainly, after the boom in remodeling over the past two years, Home Depot is likely to see growth decelerate, as was already expected coming in to 2022. And growth may be hard to find over the next year or two. But for homeowners who wish to move, but no longer can due to high interest rates on new mortgages, remodeling their existing home to better fit their needs is the next best option. Importantly, our analysis indicates that the 50% of Home Depot revenue that comes from Do It Yourself homeowners has already fallen back to normalized levels after surging dramatically in 2020 when people were stuck inside during COVID. The other 50% of revenue comes from professional contractors. This segment continues to boom, growing at an estimated 20% in the most recent quarter ending on April 30th. With homeowners desiring a remodel being forced to wait until 2023 due to extremely long backlogs of job activity, it appears very likely that strong remodeling activity will persist.”
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Our calculations show that The Home Depot, Inc. (NYSE:HD) fell short and didn’t make it on our list of the 30 Most Popular Stocks Among Hedge Funds. The Home Depot, Inc. (NYSE:HD) was in 75 hedge fund portfolios at the end of the first quarter of 2022, compared to 68 in the previous quarter. The company shares lost 13% of their value over the last 52 weeks.
Recently we published another article and shared Diamond Hill Capital’s analysis on The Home Depot, Inc. (NYSE:HD). You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters 2022 Q2 page.
Disclosure: None. This article is originally published at Insider Monkey.
