Wedgewood Partners, an investment management firm, published its second-quarter 2022 investor letter – a copy of which can be downloaded here. For the first half of 2022, a portfolio net return of -17.2% was recorded by the fund, underperforming the S&P 500 Index which delivered a -16.1% return for the same period. Go over the fund’s top 5 positions to have a glimpse of its finest picks for 2022.
In its Q2 2022 investor letter, Wedgewood Partners mentioned First Republic Bank (NYSE:FRC) and explained its insights for the company. Founded in 1985, First Republic Bank (NYSE:FRC) is a San Francisco, California-based full-service bank and wealth management company with a $27.9 billion market capitalization. First Republic Bank (NYSE:FRC) delivered a -24.90% return since the beginning of the year, while its 12-month returns are down by -20.46%. The stock closed at $155.09 per share on July 26, 2022.
Here is what Wedgewood Partners has to say about First Republic Bank (NYSE:FRC) in its Q2 2022 investor letter:
“First Republic Bank is one of the most differentiated business models in our large cap universe. What makes the Company so different is not necessarily the activities that it does, but the activities it does not do. These trade-offs are an incredibly important strategic decision that every company must make. However, in our experience, rarely are these forgone activities lauded or even recognized as critical differentiators. The Company does mention these foregone activities, on page 45 of its most recent investor presentation appendix.
When we consider the financial industry, especially banking, is fraught with competition, simply being better than any of the other massive money-center banks is not enough to sustain many decades or even years of superior performance. Rather than try to outcompete every bank in the country, First Republic’s competitive strategy of doing only a handful of things well, results in a superior value proposition to its customers. These trade-offs are easy to understand, but difficult to copy, given widespread competitive and institutional imperatives that pressure management teams to revert to the mean.
First Republic organizes its entire business around keeping long-term relationships with its bankers and clients. This strategic decision contrasts with competitors that have underlying strategic goals to drive as much client activity as possible. As a result, client development activities at First Republic look very different from those of its competitors. For example, while most companies strive – or at least market – to provide excellent client service by bombarding clients with digital touchpoints, First Republic will not open an account with its typical well-healed client without first engaging in a personal conversation. For many, this sounds like an arduous and inefficient task that can be handled or even automated by scores of digital software solutions. Paradoxically, First Republic has outgrown its peers over the past several years. The Company compounded revenues at an +18% rate from 2016 to 2021 and is now one of largest single-family mortgage lenders in the U.S…” (Click here to see the full text)
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Our calculations show that First Republic Bank (NYSE:FRC) fell short and didn’t make it on our list of the 30 Most Popular Stocks Among Hedge Funds. First Republic Bank (NYSE:FRC) was in 40 hedge fund portfolios at the end of the second quarter of 2022, compared to 39 funds in the previous quarter. First Republic Bank (NYSE:FRC) delivered a 2.01% return in the past 3 months.
In July 2022, we also shared another hedge fund’s views on First Republic Bank (NYSE:FRC) 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.
