Distillate Capital, an investment management firm, published its second-quarter 2021 investor letter – a copy of which can be downloaded here. Distillate Capital’s U.S. and International Fundamental Stability & Value strategies gained 5.73% and 4.48% on a total return basis for the quarter, respectively. The U.S. portfolio lagged its S&P 500 benchmark by around 2.8% in the quarter, which offset most of the relative gain from the first quarter such that the first-half performance of the strategy is now 10 basis points ahead of that benchmark. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.
In the Q2 2021 investor letter of Distillate Capital, the fund mentioned The Home Depot, Inc. (NYSE: HD) and discussed its stance on the firm. The Home Depot, Inc. is an Atlanta, Georgia-based home improvement company with a $353.1 billion market capitalization. HD delivered a 24.86% return since the beginning of the year, while its 12-month returns are up by 18.52%. The stock closed at $334.02 per share on August 11, 2021.
Here is what Distillate Capital has to say about The Home Depot, Inc. in its Q2 2021 investor letter:
“The largest additions in the rebalance, (included) Home Depot, was around 50 and 40 basis points incrementally. Home Depot outperformed modestly but still lagged its rising normalized cash flow estimate and so was also added to.”
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Based on our calculations, The Home Depot, Inc. (NYSE: HD) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. HD was in 68 hedge fund portfolios at the end of the first quarter of 2021, compared to 79 funds in the fourth quarter of 2020. The Home Depot, Inc. (NYSE: HD) delivered a 2.46% 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.
