Arquitos Capital, an investment management firm, published its first quarter 2021 investor letter – a copy of which can be downloaded here. A net return of 41.2% was delivered by the fund for the Q1 of 2021, ahead of its S&P 500 benchmark that delivered a 6.2% return in the same period. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.
Arquitos Capital, in their Q1 2021 investor letter, mentioned Nam Tai Property Inc. (NYSE: NTP) and shared their insights on the company. Nam Tai Property Inc. is a China-based property development and management company that currently has a $477.4 million market capitalization. Since the beginning of the year, NTP delivered a 104.27% return, extending its 12-month gains to 129.81%. As of April 23, 2021, the stock closed at $11.95 per share.
Here is what Arquitos Capital has to say about Nam Tai Property Inc. in their Q1 2021 investor letter:
“Our positions in Nam Tai Property (NTP), was a primary driver of performance during the first quarter. I wrote about NTP in last quarter’s letter as a special situation with a hard catalyst. The story I laid out in the letter materialized and shares rose from $5.85 on December 31 to $12.33 at quarter end. An activist investor had sued NTP to reverse a private placement from last fall orchestrated by the company’s controlling shareholder. At the trial earlier this year, the court reversed the private placement and found that the controlling shareholder had initiated it in order to thwart the activist’s calls for a special meeting. The court also set the date for a special meeting for April 26. The activist is nearly certain to win. However, a wrinkle in the situation occurred that may allow us to take a second bite at the trade. The controlling shareholder appealed the court’s decision, and the court granted a stay. The special meeting is now postponed.
To make things even more fun, most of the proceeds from the private placement have been caught up in a separate scandal. The proceeds from the now-reversed private placement will likely need to be returned to the controlling shareholder at some point. However, the court found that the logistics for that return should occur after the special meeting and those logistics should be decided by the new board. NTP reported in their annual report that most of the private placement proceeds, approximately $150 million of the $170 million total, were invested through Credit Suisse into a supply chain management fund. This fund, almost certainly Greensill, was sold to clients by Credit Suisse as a sort of cash-equivalent vehicle. It was anything but. Credit Suisse is now liquidating that investment and it may be years until the investors in the vehicles receive a full recovery; and there is a possibility that they will realize a material loss. NTP has said they have received half of their investment back. When I spoke to NTP’s management, they told me that they do not yet know the timing for the return of their investment but that they expect a full recovery. The company’s commentary to me about why they chose to invest in Greensill was unconvincing.
New and interesting information is coming out daily, but the bottom line is that this new scandal is a continuation of many troubling decisions by NTP’s management. Of course, this is why there was an opportunity to buy into the company at an attractive valuation in the first place. The decisions of NTP’s management are what led to the shares becoming so undervalued and are what attracted the activist to the situation.
We have significantly decreased our position in NTP since the end of Q1 and will be looking for opportunities to get more heavily involved again at a lower price.”
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Our calculations show that Nam Tai Property Inc. (NYSE: NTP) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, Nam Tai Property Inc. was in 7 hedge fund portfolios, compared to 4 funds in the third quarter. NTP delivered a -1.49% return in the past 3 months.
The top 10 stocks among hedge funds returned 231.2% between 2015 and 2020, and outperformed the S&P 500 Index ETFs by more than 126 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Here you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.
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Disclosure: None. This article is originally published at Insider Monkey.
