Ensemble Capital, an investment management firm, published its third-quarter 2021 investor letter – a copy of which can be downloaded here. In the letter, the fund discussed why they see so much new value being created in the years ahead, the value that their portfolio of companies is helping to develop. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.
Ensemble Capital, in its Q3 2021 investor letter, mentioned Nintendo Co., Ltd. (NYSE: NTDOY) and discussed its stance on the firm. Nintendo Co., Ltd. is a Kyoto, Kyoto, Japan-based consumer electronics company with a $53.1 billion market capitalization. NTDOY delivered a -30.09% return since the beginning of the year, while its 12-month returns are down by -18.08%. The stock closed at $56.29 per share on October 15, 2021.
Here is what Ensemble Capital has to say about Nintendo Co., Ltd. in its Q3 2021 investor letter:
“Nintendo: Having had a banner year and a quarter last year with both its Switch console sales and megahit Animal Crossing: New Horizons game release, helped in part by COVID restrictions, Nintendo posted sales that were down -10% vs a year ago while operating income was down -17%. Consequently, the stock has had a challenged performance in the quarter, falling 19%. However, looking past the one-time nature of the comparison effects of the COVID bump last year, the more important fundamental metric to track for the company’s future business is its installed base of Switch consoles. The Switch installed base of customers has grown by about 50 million units to over 85 million since 2019, aided by a surge in interest in family gaming. We believe the family gaming trend is an important and persistent one and the huge increase in the installed base bodes well for future game and digital subscription sales going forward.”
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Based on our calculations, Nintendo Co., Ltd. (NYSE: NTDOY) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. NTDOY was in 2 hedge fund portfolios at the end of the first half of 2021, compared to 1 fund in the previous quarter. Nintendo Co., Ltd. (NYSE: NTDOY) delivered a -18.42% 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.
