Richie Capital Group, an investment management firm, published its third-quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly portfolio net return of -5.0% was recorded by the RCG Long Only strategy for the third quarter of 2021, while the RCG Long Short Fund lost -5.3%. The fund’s closest benchmarks, the Russell 3000 Index and the Equity Long-Short Index returned -0.1% and -0.2% respectively for the same period. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.
Richie Capital Group, in its Q3 2021 investor letter, mentioned Viemed Healthcare, Inc. (NASDAQ: VMD) and discussed its stance on the firm. Viemed Healthcare, Inc. is a Lafayette, Louisiana-based home health care services company with a $227.2 million market capitalization. VMD delivered a -26.03% return since the beginning of the year, while its 12-month returns are down by -35.65%. The stock closed at $5.65 per share on October 13, 2021.
Here is what Richie Capital Group has to say about Viemed Healthcare, Inc. in its Q3 2021 investor letter:
“We exited our position in Viemed Healthcare (VMD) in July after holding the stock for a little over a year. We acquired our shares at what I believed to be a post-pandemic discount. As the pandemic continued beyond our original estimates, the inability for Respiratory Technicians to visit doctors in hospitals, and patients in homes, proved to be a major headwind. Management was never able to get back to their pre-pandemic growth rates, and I did not believe it would happen soon. It is a reminder that, in a relationship business, even when your relationships are strong, there is no substitution for a face to face meeting, a handshake, or a hug to revalidate the relationship. And with a year lost, VMD was losing significant time ahead of a possible 2023 new rate announcement under the Competitive Bidding Program which could significantly impact their non-invasive ventilator business.
Another concern was their handling of executive compensation. From the beginning, I was frustrated by management’s insistence on adding back options grants to their reported Adjusted EBITDA numbers. Option grants are a real expense and should be treated as such, and so we made adjustments to our own internal numbers. Furthermore, I observed that their options compensation for executives was much higher than should be for such a small company. Management continued to grant options despite the company’s underperformance during the pandemic. I realized that as the stock continued to decline and those options lost value, management would be forced to issue even more options (diluting existing shareholders) or risk losing executives seeking greener pastures.
There are additional bullets to my exit decision, but I will leave this as it is. I am happy to put that one behind us.”
Source: Unsplash
Based on our calculations, Viemed Healthcare, Inc. (NASDAQ: VMD) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. VMD was in 11 hedge fund portfolios at the end of the first half of 2021, compared to 10 funds in the previous quarter. Viemed Healthcare, Inc. (NASDAQ: VMD) delivered a -15.21% 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.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this biotech stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage.
Disclosure: None. This article is originally published at Insider Monkey.
