Broyhill Asset Management, an investment management firm, published its second-quarter 2021 investor letter – a copy of which can be downloaded here. Since the availability of vaccines was announced in the fourth quarter of last year, the portfolio has appreciated materially, generating strong absolute performance and attractive returns relative to broad market indices. You can view the fund’s top 5 holdings to have an idea about their top bets for 2021.
In the Q2 2021 investor letter of Broyhill Asset Management, the fund mentioned McKesson Corporation (NYSE: MCK) and discussed its stance on the firm. McKesson Corporation is an Irving, Texas-based health care coverage and access company with a $31.3 billion market capitalization. MCK delivered a 16.43% return since the beginning of the year, extending its 12-month returns to 35.31%. The stock closed at $200.41 per share on August 20, 2021.
Here is what Broyhill Asset Management has to say about McKesson Corporation in its Q2 2021 investor letter:
“Analysts continued ratcheting up full-year earnings estimates for McKesson (MCK) driving the stock steadily higher. Despite strong year-to-date gains, shares of the company are trading at lower valuations today than before the pandemic as earnings estimates have outpaced their rising stock prices… The story is similar at McKesson where vaccine distribution should continue to provide upside to consensus estimates. Although investors have been hesitant to give the company full credit for today’s “temporary” profits, we think these “temporary” COVID-tailwinds may turn out to be not so temporary. If we are wrong, we believe downside is limited given recent activist involvement and management’s decision to pursue a strategic review to capture the full value of the company’s drug development business.”
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Based on our calculations, McKesson Corporation (NYSE: MCK) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. MCK was in 51 hedge fund portfolios at the end of the first half of 2021. McKesson Corporation (NYSE: MCK) delivered a 1.42% 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.
