Oakmark Funds, an investment management firm, published its “Oakmark Fund” second quarter 2021 investor letter – a copy of which can be seen here. A return of 8.9% was reported by the fund in the Q2 of 2021, outperforming its benchmark by 25 percentage points. 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 Oakmark Funds, the fund mentioned MGM Resorts International (NYSE: MGM) and discussed its stance on the firm. MGM Resorts International is a Las Vegas, Nevada-based hospitality company with a $20.4 billion market capitalization. MGM delivered a 34.77% return since the beginning of the year, extending its 12-month returns to 77.98%. The stock closed at $41.98 per share on August 26, 2021.
Here is what Oakmark Funds has to say about MGM Resorts International in its Q2 2021 investor letter:
“We originally established our position in MGM during 2016. At that time, we believed its valuation did not reflect the improving fundamentals of the Las Vegas Strip, which was recovering from years of overbuilding. The market had also failed to recognize the quality of MGM’s assets and its potential to dramatically reduce a bloated cost structure. A long history of private market transaction activity further supported our view that the stock was materially undervalued. However, choppy execution by former management and a profit growth plan that failed to live up to expectations made this a bumpy (yet rewarding!) investment for Oakmark. Perhaps the biggest surprise relative to our initial thesis is the momentum and excitement surrounding the online sports gambling market. The company’s BetMGM platform has quickly staked the third-largest market position in online sports betting with plans to capture up to 25% of this $30+ billion market, which continues to grow rapidly. The exuberance surrounding digital gaming, coupled with expectations for a strong post-pandemic recovery in Las Vegas, has lifted the stock price to our estimate of intrinsic value. Therefore, we sold our shares in favor of more attractively priced alternatives.”
Based on our calculations, MGM Resorts International (NYSE: MGM) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. MGM was in 59 hedge fund portfolios at the end of the first half of 2021, compared to 57 funds in the previous quarter. MGM Resorts International (NYSE: MGM) delivered a -0.58% 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.
