Investmentaktiengesellschaft für langfristige Investoren TGV, a Germany-based investment management firm, published its “TGV Intrinsic Fund” second-quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly net return of 10.2% was recorded by the fund for the first half of 2021, slightly below the DAX benchmark that delivered a 13.2% return for the same period. 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 TGV Intrinsic Fund, they mentioned Westinghouse Air Brake Technologies Corporation (NYSE: WAB) and discussed their stance on the firm. Westinghouse Air Brake Technologies Corporation is a Pittsburgh, Pennsylvania-based equipment and services technology provider with a $17.1 billion market capitalization. WAB delivered a 23.57% return since the beginning of the year, while its 12-month returns are up by 35.36%. The stock closed at $90.33 per share on September 13, 2021.
Here is what TGV Intrinsic Fund has to say about Westinghouse Air Brake Technologies Corporation in its Q2 2021 investor letter:
“The second change concerns the American railway supplier Westinghouse Air Brake Technologies (Wabtec). Wabtec took over the railway division from General Electric (GE) in 2019. As part of this, Rafael Santana – who had come over from GE – became the new CEO of Wabtec. The previous CEO, Ray Betler, is one of the best corporate leaders I know, and I particularly appreciated the decentralised corporate culture he embodied. The operating figures have developed nicely since 2019 under Rafael Santana. However, from conversations with current and former employees of Wabtec, it is becoming increasingly clear to me that the GE culture, which is designed to achieve short-term corporate goals, is establishing itself within the company. This culture is not necessarily bad – but it is a culture that does not fit the long-term orientation of the TGV Intrinsic.
Accordingly, I recommended the sale of all Wabtec shares despite the decent operational development. Wabtec is a good example of a distinction between “process” and “result”. In the long run, the right process typically leads to a good result and the wrong process to a bad one. In the short term, however, even a wrong process can lead to a good result. Considered by itself, Wabtec’s financial development since 2019 (result) is not sufficient to make an investment recommendation for the future. Changes in the corporate culture (process) often only become noticeable in the financial figures after several years and are therefore a more meaningful indicator of the long-term operational development than the short-term historical busines development. Accordingly, my discussions with current and former Wabtec employees about changes in the corporate culture are the crucial reason for the sell recommendation, as I assume that the GE culture will lead to worse operating results in the long term.”
Based on our calculations, Westinghouse Air Brake Technologies Corporation (NYSE: WAB) was not able to clinch a spot on our list of the 30 Most Popular Stocks Among Hedge Funds. WAB was in 46 hedge fund portfolios at the end of the first half of 2021, compared to 40 funds in the previous quarter. Westinghouse Air Brake Technologies Corporation (NYSE: WAB) delivered a 12.28% 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.
