Silver Beech Capital, an investment management firm, released its third quarter 2023 investor letter, a copy of which can be downloaded here. In the first nine months of 2023, Silver Beech achieved a year-to-date net return of 12.7%, outperforming the S&P 500, which returned 10.7%, and surpassing the Russell 2000’s year-to-date returns of -0.9%. Take a moment to review the fund’s top 5 holdings to gain insights into their primary investment choices for 2023.
In its Q3 2023 investor letter, Silver Beech Capital mentioned Fidelity National Financial Inc. (NYSE:FNF) and explained its insights for the company. Fidelity National Financial Inc. (NYSE:FNF) is a Jacksonville, Florida-based title insurance company with a $11.3 billion market capitalization. Fidelity National Financial Inc. (NYSE:FNF) delivered a 10.53% return since the beginning of the year, while its 12-month returns are up by 9.51%. The stock closed at $41.58 per share on November 2, 2023.
Here is what Silver Beech Capital has to say about Fidelity National Financial Inc. (NYSE:FNF) in its Q3 2023 investor letter:
“Fidelity National Financial (“FNF”) is the largest title insurance agency in the United States and a leading provider of title-related real estate transaction services. FNF also owns 85% of F&G Annuities, a life insurance and annuity business.
Real estate transaction volume is tied to the interest rate cycle; therefore, title insurers are cyclical and often dismissed as bad businesses. FNF’s title profits will likely decline by over 50% in 2023, a cyclical trough, versus profits in 2021, a cyclical peak. Lumpiness in FNF’s title profits is to be expected, yet investors over-extrapolate FNF’s earnings power to the upside and downside. Since 2021, FNF’s stock peaked at ~$50 per share and troughed at ~$32 per share, a greater than 60% dispersion in equity valuation (including share repurchase accounting but excluding spin-offs).
Though volume is cyclical, real estate transactions are a constant feature of the American economy and FNF’s title profits will normalize. FNF earns the highest title margins in the industry and remained profitable this year despite the challenging operating environment. This is important because title fees are regulated at the state and local level, restricting excessive take rates, so effective expense management is essential. Fee regulation entrenches the title market’s status quo because returns on capital are good but not high enough to justify new competition. Regulators and customers are most comfortable with existing providers because they are compliant with the regulatory landscape, reliable, possess the most data, have the deepest customer relationships, and constitute a tiny fraction of spend in the value chain.
Even though FNF’s title business is a clear industry leader with the highest market share, highest margins, and highest returns, it trades for the lowest multiple among its peers. We would argue the entire title sector, not just FNF, is undervalued. Though title insurance is currently the primary driver of customers to FNF’s value-added real estate transaction services, we also think of FNF as a nascent data business that over time could monetize its data assets by becoming an independent provider of real estate transactions data…” (Click here to see the full text)
photo by Business-laptop-campaign-creators on Unsplash
Our calculations show that Fidelity National Financial Inc. (NYSE:FNF) failed to make it on our list of the 30 Most Popular Stocks Among Hedge Funds. Fidelity National Financial Inc. (NYSE:FNF) was in 31 hedge fund portfolios at the end of the second quarter of 2023, compared to 33 funds in the previous quarter. Fidelity National Financial Inc. (NYSE:FNF) delivered a 5.32% return in the past 3 months. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters Q3 2023 page.
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Disclosure: None. This article is originally published at Insider Monkey.
