Laughing Water Capital LP, an investment management firm, published its second quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly median account return of 9.5% net of fees was recorded by the fund for the second quarter of 2021, compared unfavorably to the 8.6% and 4.3% returns of the SP500TR and R2000TR respectively. 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 Laughing Water Capital, the fund mentioned Thryv Holdings, Inc. (NASDAQ: THRY), and discussed its stance on the firm. Thryv Holdings, Inc. is a Grapevine, Texas-based software company, that currently has a $1.1 billion market capitalization. THRY delivered a 145.78% return since the beginning of the year, extending its 12-month returns to 214.29%. The stock closed at $33.18 per share on July 28, 2021.
Here is what Laughing Water Capital has to say about Thryv Holdings, Inc. in its Q2 2021 investor letter:
“Thryv was introduced anonymously as “Company 2” in our Q1 2021 letter. Historically, this company has been best known as the owner of the Yellow Pages phone books, which has been in and out of bankruptcy in the recent past. While phone books have clearly been in decline since the invention of the internet, this business continues to spit off substantial amounts of cash. Perhaps more importantly, the small businesses that pay to advertise in the Yellow Pages are a fertile hunting ground for the company’s small business software product, which brings all aspects of daily workflow (estimates, invoices, billing, payments, scheduling etc.) into the cloud, replacing a system that is often a combination of post-it notes and an excel file. This SAAS offering has hit a few speedbumps over the last year or so as the company refined their go to market strategy, but growth is re-accelerating and there is a path to increasing customer count by 400-500% in the coming years. What is unusual about this business versus SAAS comps is that it is already profitable. The company has ample opportunity to re-deploy this cash in accretive ways, first through paying down debt, but also through buying up the few remaining phone book businesses globally. To be clear, these would be melting ice cube businesses, but Thryv has demonstrated in the past that they can convert ~10% of phone book customers into SAAS customers that would come with extremely high incremental margins, and these assets are generally available at very low prices. Overtime I expect that as the company grows and as the market gets comfortable with the relationship between cash flows from the declining phone book business, growing software business, and debt the stock will re-rate significantly higher.”
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Based on our calculations, Thryv Holdings, Inc. (NASDAQ: THRY) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. THRY was in 12 hedge fund portfolios at the end of the first quarter of 2021, compared to 9 funds in the fourth quarter of 2020. Thryv Holdings, Inc. (NASDAQ: THRY) delivered a 0.73% 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.
