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. To have a glimpse of its finest picks for 2022, check out the top 5 holdings of the fund.
One of the main reasons for Ensemble’s poor 2022 performance is the underperformance of housing stocks this year like First American Financial Corporation (NYSE:FAF) which provides financial services through title insurance and settlement services to the home buyers and sellers to meet their specific needs. First American Financial Corporation (NYSE:FAF) is headquartered in Santa Ana, California, and has a $5.98 billion market capitalization. The stock of First American Financial Corporation (NYSE:FAF) closed at $55.70 per share on July 22, 2022. First American Financial Corporation (NYSE:FAF) had a 4.09% return for the past month, while its 12-month returns are down by -14.96%. 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 hikes.
Here is what the fund specifically said about First American Financial Corporation (NYSE:FAF):
“First American, a title insurance company, makes money for each home sale, refinance transaction or commercial real estate transaction that they participate in. If the buyer is going to use a mortgage as part of the transaction, the lender requires title insurance because in the US there is no central, validated record keeping system that ensures that a person representing themselves as owning real estate actually has clear title to the property. There is no doubt that refinance transactions have fallen dramatically. But we’ve long expected this to happen, and we expect refinancing to remain at very low levels over the long-term. In addition, First American earns about 2.5x more revenue on home purchase transactions than on refinance transactions. While the price of homes or commercial real estate may well take a step back, we think it is unlikely that home purchases and commercial real estate transactions decline significantly and stay at depressed levels. Rather we believe that near term declines in real estate transactions will recover to new highs in the years ahead given how depressed activity levels have been. The stock is now trading at a PE of 8, its lowest valuation in over a decade except when it briefly fell to even lower levels in the early days of COVID when there was worries about a complete collapse of the housing market.”
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Our calculations show that First American Financial Corporation (NYSE:FAF) fell short and didn’t make it on our list of the 30 Most Popular Stocks Among Hedge Funds. First American Financial Corporation (NYSE:FAF) was in 31 hedge fund portfolios at the end of the first quarter of 2022, compared to 30 in the previous quarter. The company’s shares lost 13% of their value over the last 52 weeks.
Recently we published another article and shared the thoughts of hedge funds about First American Financial Corporation (NYSE:FAF). 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.
