Argosy Investors, an investment management firm, published its second quarter 2021 investor letter – a copy of which can be downloaded here. A portfolio return of 16.5% was recorded by the fund for the second half of 2021, while the S&P 500 by comparison returned 15.3%. 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 Argosy Investors, the fund mentioned Dream Finders Homes, Inc. (NASDAQ: DFH), and discussed its stance on the firm. Dream Finders Homes, Inc. is a Jacksonville, Florida-based homebuilder company, that currently has a $2.2 billion market capitalization. DFH delivered a -7.97% return in the past 3 months, and it closed at $24.03 per share on August 02, 2021.
Here is what Argosy Investors has to say about Dream Finders Homes, Inc. in its Q2 2021 investor letter:
“So how are our largest holdings affected in a world of higher wage inflation? As a general rule, I will evaluate current and potential future holdings on their capital intensivity and their ability to raise prices. Dream Finders is now (a part of) our top 5 largest equity holdings. Dream Finders is a homebuilder and is likely to need to increase wages to continue their growth. Failure to do so could lead to slower growth and unhappy customers, while raising wages will likely reduce their gross margins. Hopefully they can price their houses to maintain EBIT margin dollars at levels they would have achieved with higher gross margins, but homebuilding is competitive so I’m not terribly optimistic. Additionally, if wage inflation leads to more general inflation, interest rates are a significant input into the home buyer’s ability to afford a house. If interest rates increase, even a little bit, from current levels, home buying and thus homebuilding activity would probably slow down, perhaps dramatically.”
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Based on our calculations, Dream Finders Homes, Inc. (NASDAQ: DFH) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. DFH was in 10 hedge fund portfolios at the end of the first quarter of 2021. Dream Finders Homes, Inc. (NASDAQ: DFH) delivered an 11.77% return in the past month.
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.
