Longleaf Partners Fund, a Memphis-based fund under Southeastern Asset Management, published its “Longleaf Partners Global Fund” second quarter 2021 investor letter – a copy of which can be downloaded here. A portfolio quarterly return of 1.27% was recorded by the fund for the second quarter of 2021, taking year-to-date (YTD) returns to 14.63% while its benchmark, the MSCI World Index, by comparison returned 7.74% and 13.05% over the same periods. 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 Longleaf Partners Global Fund, the fund mentioned Biogen Inc. (NASDAQ: BIIB), and discussed its stance on the firm. Biogen Inc. is a Cambridge, Massachusetts-based biotechnology company, that currently has a $50.6 billion market capitalization. BIIB delivered a 38.85% return since the beginning of the year, while its 12-month returns are up by 11.22%. The stock closed at $340.00 per share on August 06, 2021.
Here is what Longleaf Partners Global Fund has to say about Biogen Inc. in its Q2 2021 investor letter:
“Biogen (52%, 1.24%), a biotechnology company specializing in therapies for the treatment of neurological diseases, contributed in a way that warrants a longer than usual writeup. When we first began buying the company in early January, the stock scored well on all three Business, People and Price criteria, but the range of outcomes was wider than most investments for us. On the business, while the company has had a leading position in neuroscience for decades, it had become a collection of assets that was hard for the stock market to value. This led to most short-term investors focusing on year-over-year (YOY) earnings declines in 2021 and pipeline uncertainty. We focused most on strong cash flows from Biogen’s Multiple Sclerosis franchise, a growing yet hidden biosimilars business, and a pipeline that we believed was actually quite interesting and diversified beyond the manic market focus on Aducanumab, a proposed treatment for Alzheimer’s. On the people front, we also liked what the board and management had been doing (large, discounted repurchases and prudent internal and external investments) and not doing (no big, dumb M&A or unsustainable dividends). Our single point appraisal was around $375/share, but we saw a range at the low end of slightly above $250 if the pipeline totally failed or approaching $500 if the company saw a reasonable amount of pipeline success. We also thought that we were effectively paying a very low double-digit multiple of FCF/share. It is important to note that we were not betting on our science expertise or any other predictions that fall outside our circle of competence. Rather, we used our bottom-up appraisal skills to find a security that was mispriced at that given moment – we had followed the company for over 10 years before our purchase – and that shorter-term investors were afraid to own due to the potential for near-term stock price volatility. We started with a
partial position, as we felt the wider-than-usual range of outcomes and uncertainty around the stock could lead to the chance to fill it out at a better price later.On June 7, the FDA approved Aducanumab (now known as Aduhelm) after a contentious process that has yet to fully play out. The stock shot upward, and our single point value increased to $425. With the stock trading at that level, we exercised our price discipline and sold our position. In this era of “multi-decade-compounders at any price” and given SAM’s history of being long term, it feels weird to be in and out of something so quickly. But it also feels OK to be able to use our appraisal skills to secure a payoff for our long-term clients. The company’s stock price has fallen since our sale, and we will continue to watch the price-to-value (P/V) gap going forward.”
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Based on our calculations, Biogen Inc. (NASDAQ: BIIB) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. BIIB was in 63 hedge fund portfolios at the end of the first quarter of 2021, compared to the same 63 funds in the fourth quarter of 2020. Biogen Inc. (NASDAQ: BIIB) delivered a 24.07% 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.
