Saga Partners, an investment management firm, published its second-quarter 2021 investor letter – a copy of which can be downloaded here. A net return of 7.5% was recorded by the fund for the Q2 of 2021, compared to the overall increase for the S&P 500 Index, including dividends, of 15.3%. You can take a look at the fund’s top 5 holdings to have an idea about their top bets for 2021.
In the Q2 2021 investor letter of Saga Partners, the fund mentioned GoodRx Holdings, Inc. (NASDAQ: GDRX) and discussed its stance on the firm. GoodRx Holdings, Inc. is a Santa Monica, California-based healthcare company with a $17.4 billion market capitalization. GDRX delivered a 10.57% return since the beginning of the year, while its 12-month returns are down by -14.29%. The stock closed at $46.33 per share on September 23, 2021.
Here is what Saga Partners has to say about GoodRx Holdings, Inc. in its Q2 2021 investor letter:
“The Saga Portfolio first bought GoodRx at the end of 2020 and has added to it throughout 2021. As it has become a larger position in the Portfolio, it makes sense to explain the investment thesis in more detail.
For those who don’t care to understand the prescription drug value chain, feel free to skip over this section. While few readers may really care about the fairly complicated prescription drug value chain, it is important to review in order to understand the role that GoodRx plays within the ecosystem. This is my best attempt in trying to explain it in a few paragraphs.
Like many other parts of the U.S. healthcare system, prescription drugs suffer from complex and non-transparent pricing with access largely controlled by health plan payers. The majority of people in the U.S. have insurance provided by either their employer or a government program such as Medicare or Medicaid. Consumers largely rely on third parties to determine which drugs are covered by their health plan, and therefore which drugs may or may not be affordable.
Pharmacy benefit managers (PBMs) play a significant role and sit in the middle of three different parties. They are the intermediary between health insurers, pharmacies, and drug manufacturers. Health insurers hire PBMs to manage prescription drug plans for their covered population. PBMs negotiate on behalf of the health insurer with pharmacies. Pharmacies enter pricing contracts with PBMs in an effort to drive more demand to the store…” (Click here to see the full text)
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Based on our calculations, GoodRx Holdings, Inc. (NASDAQ: GDRX) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. GDRX was in 28 hedge fund portfolios at the end of the first half of 2021, compared to 24 funds in the previous quarter. GoodRx Holdings, Inc. (NASDAQ: GDRX) delivered a 19.55% 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.
