Baron Funds, an asset management firm, published its “Baron Health Care Fund” third quarter 2021 investor letter – a copy of which can be downloaded here. A return of 1.18% was delivered by the fund’s institutional shares for the third quarter of 2021, outperforming both its S&P 500 and Russell 3000 Health Care benchmarks that delivered 0.58% and 0.17% returns respectively for the same period. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.
Baron Funds, in its Q3 2021 investor letter, mentioned Eargo, Inc. (NASDAQ: EAR) and discussed its stance on the firm. Eargo, Inc. is a San Jose, California-based hearing aid manufacturer with a $332.1 billion market capitalization. EAR delivered a -81.12% return since the beginning of the year, while its 12-month returns are up by -75.65%. The stock closed at $8.46 per share on November 5, 2021.
Here is what Baron Funds has to say about Eargo, Inc. in its Q3 2021 investor letter:
“Eargo, Inc. offers a hearing aid that is virtually invisible, affordable, and delivered through a telecare-based direct-to-consumer model. Shares fell sharply for the period held after the company disclosed it was undergoing a claims audit by an insurance company that then escalated into an investigation by the Department of Justice. We exited our position because we believe this development fundamentally changed our investment thesis.”
Photo by Mark Paton on Unsplash
Based on our calculations, Eargo, Inc. (NASDAQ: EAR) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. EAR was in 17 hedge fund portfolios at the end of the first half of 2021, compared to 12 funds in the previous quarter. Eargo, Inc. (NASDAQ: EAR) delivered a -76.34% 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.
