Oakmark Funds, an investment management firm, published its Bill Nygren third-quarter 2021 market commentary – a copy of which can be seen here. In the letter, the fund talked about governance with a related topic about shareholders vs. stakeholders, and also discussed some great companies to invest in. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.
Oakmark Funds, in its Bill Nygren third-quarter 2021 market commentary, mentioned General Mills, Inc. (NYSE: GIS) and discussed its stance on the firm. General Mills, Inc. is a Minneapolis, Minnesota-based food company with a $37.8 billion market capitalization. GIS delivered a 6.01% return since the beginning of the year, while its 12-month returns are up by 1.67%. The stock closed at $62.71 per share on October 20, 2021.
Here is what Oakmark Funds has to say about General Mills, Inc. in its Q3 2021 investor letter:
“In the 1970s, blackout rules prevented televising NFL home games that weren’t sold out. It was always uncertain whether or not the Minnesota Vikings’ games would be televised. I remember how excited I’d be each week hearing that General Mills had purchased the remaining tickets, allowing the game to be on TV. Some said General Mills did this for its stakeholders—its employees and community—as opposed to maximizing profits for its shareholders. I believe stakeholders and shareholders both benefitted.
Consider the long-term benefits of General Mills being the hero that let us watch those games. It made employees proud of their employer and maybe helped with talent acquisition. The thousands of disadvantaged kids who got to attend NFL games were perhaps more likely to become General Mills customers or employees. And across the state, maybe we were all more likely to buy Betty Crocker cake mix instead of Duncan Hines. While the tickets were purchased in the name of being a good corporate citizen, I believe it was the most effective marketing ever done by General Mills and clearly benefitted the company’s shareholders.
Would Friedman argue against this spending because it reduced profits? Absolutely not. His writing from more than 40 years ago sounds eerily timely: “In the present climate of opinion, with its widespread aversion to ‘capitalism,’ ‘profits,’ the ‘soulless corporation’ and so on, this is one way for a corporation to generate goodwill as a by-product of expenditures that are entirely justified in its own self-interest.”
General Mills accepted lower short-term profits in its pursuit of higher long-term value. And the stakeholders also benefitted. In The Heart of Capitalism, Joly states that “shareholder or stakeholder” tradeoffs are artificial because an “and” solution often exists. “We maximize performance not by choosing between stakeholders, but by embracing all of them. We choose employees and customers and shareholders and the community.” Joly cites examples from his time at Best Buy, including reducing its carbon footprint by installing LED lights throughout the stores. “This helps the environment and helped us save money on our energy consumption. Again, not a zero-sum game.”
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Based on our calculations, General Mills, Inc. (NYSE: GIS) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. GIS was in 37 hedge fund portfolios at the end of the first half of 2021, compared to 31 funds in the previous quarter. General Mills, Inc. (NYSE: GIS) delivered a 6.00% 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.
