Desert Lion Capital, an investment management firm, published its second-quarter 2021 investor letter – a copy of which can be downloaded here. A return of -2.0% for the quarter and +13.5% year-to-date through June was delivered by the fund for the Q2 of 2021, outperforming the FTSE/JSE All Share Index that delivered a +5.3% return for the same period. 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 Desert Lion Capital, the fund mentioned Karooooo Ltd. (NASDAQ: KARO) and discussed its stance on the firm. Karooooo Ltd. is a Singapore-based software company with a $909.9 million market capitalization. KARO delivered a -7.31% return in the past month and it closed at $28.61 per share on September 28, 2021.
Here is what Desert Lion Capital has to say about Karooooo Ltd. in its Q2 2021 investor letter:
“Two of the biggest contributors to inception-to-date performance (includes) Karooooo (formerly Cartrack), both “day one” positions that remain in the fund. These small cap, illiquid companies are followed by few market participants, making them underappreciated or even ignored. Desert Lion’s experience in hunting for hidden value in the South African investable universe helps us uncover such names and use our competitive advantages to build investment theses predicated on long-term potential.
I have covered Karooooo extensively in previous investor letters, at MOI Best Ideas 2019, and BTIG Cap Intro 2021. These sources are accessible to those who sign up for access to our website – please see the footnotes below for navigation instructions.”
Photo by Danial Igdery on Unsplash
Based on our calculations, Karooooo Ltd. (NASDAQ: KARO) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. KARO was in 5 hedge fund portfolios at the end of the first half of 2021. Karooooo Ltd. (NASDAQ: KARO) delivered a -18.14% 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.