Bireme Capital, an investment management firm, published its third-quarter 2021 investor letter – a copy of which can be seen here. A portfolio net return of 9.1% was delivered by the fund for the third quarter of 2021, handily eclipsing the S&P 500’s return of 0.6%. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.
Bireme Capital, in its Q3 2021 investor letter, mentioned Gaotu Techedu Inc. (NYSE: GOTU) and discussed its stance on the firm. Gaotu Techedu Inc. is a China-based exam preparation and tutoring company with a $756.3 million market capitalization. GOTU delivered a -94.30% return since the beginning of the year, while its 12-month returns are down by -95.70%. The stock closed at $2.95 per share on November 2, 2021.
Here is what Bireme Capital has to say about Gaotu Techedu Inc. in its Q3 2021 investor letter:
“GSX (now GOTU), a Chinese education company which was accused of falsifying a majority of its online customer base, has seen its share price whipsaw in 2021 from $50 to $140 to today’s price of below $4. The plunge began in early March, as GSX announced earnings results that included a wider quarterly loss and a 30% weaker Q2 revenue forecast than Wall Street had expected.
Then a few weeks later rumors surfaced of an impending regulatory crackdown on for-profit education companies in China. Simultaneously one of their largest shareholders, Archegos Capital Management, was collapsing. Archegos’s margin calls forced their brokers to sell massive blocks of shares in various tech and media stocks, including GSX, which seems to have hastened the price decline.The final nail in the coffin for GSX came on 7/23, when Chinese regulators banned for-profit after-school tutoring.”
Photo by Jerry Wang on Unsplash
Based on our calculations, Gaotu Techedu Inc. (NYSE: GOTU) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. GOTU was in 11 hedge fund portfolios at the end of the first half of 2021, compared to 30 funds in the previous quarter. Gaotu Techedu Inc. (NYSE: GOTU) delivered a -20.49% 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.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. Recently we came across a high-growth stock that has tons of hidden assets and is trading at an extremely cheap valuation. We go through lists like the 10 best growth stocks to buy to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage.
Disclosure: None. This article is originally published at Insider Monkey.
