Diamond Hill Capital, an investment management firm, published its “Diamond Hill Small Cap Fund” second-quarter 2021 investor letter – a copy of which can be downloaded here. The portfolio performed roughly in line with the Russell 2000® Index in the quarter, delivering solid absolute results and remaining ahead of the benchmark year to date. You can take a look at the fund’s top 5 holdings to have an idea about their top bets for 2021.
In the Q2 2021 investor letter of Diamond Hill Capital, the fund mentioned Cal-Maine Foods, Inc. (NASDAQ: CALM) and discussed its stance on the firm. Cal-Maine Foods, Inc. is a Jackson, Mississippi-based fresh egg producer with a $1.7 billion market capitalization. CALM delivered a -6.10% return since the beginning of the year, while its 12-month returns are down by -9.34%. The stock closed at $35.25 per share on September 10, 2021.
Here is what Diamond Hill Capital has to say about Cal-Maine Foods, Inc. in its Q2 2021 investor letter:
“Cal-Maine, the largest producer and distributor of fresh eggs in the U.S., was another bottom contributor. The environment for shell eggs has been challenging over the past 12 months. During 2020, producers that typically sell into restaurants and cafeterias responded to the demand shock by shifting into grocery stores where Cal-Maine operates—pressuring pricing. The economic reopening has improved the oversupply, but pricing remains challenged as an increase in eating away from home has pressured demand. We continue to think the long-term opportunity for Cal-Maine is in its cage-free production capabilities. Cal-Maine’s ongoing investments here have depressed free cash flow in the near term but should bear long-term fruit, particularly as California looks to go 100% cage-free in 2022.”
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Based on our calculations, Cal-Maine Foods, Inc. (NASDAQ: CALM) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. CALM was in 19 hedge fund portfolios at the end of the first half of 2021, compared to 20 funds in the previous quarter. Cal-Maine Foods, Inc. (NASDAQ: CALM) delivered a -4.99% 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.
