Gator Capital Management, an investment management firm, published its fourth-quarter 2021 investor letter – a copy of which can be downloaded here. A return of 6.94% was recorded by the fund for the fourth quarter of 2021, compared to its benchmarks, the S&P 500 Total Return Index that delivered an 11.03% return, and the S&P 1500 Financials Index that had a 4.77% gain for the same period. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.
Gator Capital Management, in its Q4 2021 investor letter, mentioned Enact Holdings, Inc. (NASDAQ: ACT) and discussed its stance on the firm. Founded in 1981, Enact Holdings, Inc. is a North Carolina-based private mortgage insurance company with a $3.4 billion market capitalization and is currently spearheaded by its CEO, Rohit Gupta. ACT delivered a -5.69% and it closed at $20.89 per share on March 11, 2022.
Here is what Gator Capital Management has to say about Enact Holdings, Inc. in its Q4 2021 investor letter:
“We own positions in both Enact Holdings and its parent company, Genworth Financial. Enact is one of six mortgage insurance companies. Mortgage insurance is purchased by borrowers to protect lenders if the borrower defaults on their mortgage. The government mortgage agencies (“GSEs”) require mortgage insurance when the borrower has a down payment of less than 20% of the home’s purchase price. Usually, first-time homeowners are the largest users of mortgage insurance since they often have the most difficult time accumulating enough savings for a 20% down payment. We believe the demand for mortgage insurance will be strong, but the mortgage insurance companies’ stocks are priced as though future earnings will not grow.
Here are our investment theses on Enact Holdings:
Enact Holdings
1. Ignored stock – Enact’s stock is ignored because of its low float. Enact held an initial public offering in September 2021. Genworth retained ownership of 81.6% of Enact’s shares. 9% was sold in a private placement to another money manager, so only 10% of Enact’s shares are free to trade by public investors. This prevents larger investors from taking a significant position in Enact.
2. Low valuation – Enact trades for 85% of tangible book value and 6x earnings. It is the least expensive stock of the publicly traded mortgage insurers, and we believe the entire group is cheap. The valuations are especially attractive given there are likely very few losses in their existing portfolios, and mortgage insurers have used strong underwriting criteria since the Great Financial Crisis (“GFC”)…” (Click here to see the full text)
Pixabay/Public Domain
Our calculations show that Enact Holdings, Inc. (NASDAQ: ACT) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. ACT was in 18 hedge fund portfolios at the end of the fourth quarter of 2021, compared to 22 funds in the previous quarter. Enact Holdings, Inc. (NASDAQ: ACT) delivered a 0.38% return in the past 3 months.
In January 2022, we published an article that includes ACT in the 10 New Stock Picks of Brian Higgins’ King Street Capital. You can find more than 100 investor letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.
Disclosure: None. This article is originally published at Insider Monkey.
