Maran Capital Management, an investment management firm, published its second quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly median account return of +24.9% net of fees was recorded by the fund for the second quarter of 2021, bringing year-to-date returns to +53.1%, net. Over the past five years, the partnership has compounded at the annualized rate of +26.2%, net, based on the fund’s standard fee structure. 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 Maran Capital Management, the fund mentioned Pure Cycle Corporation (NASDAQ: PCYO), and discussed its stance on the firm. Pure Cycle Corporation is a Thornton, Colorado-based water services company, that currently has a $372.9 million market capitalization. PCYO delivered a 38.91% return since the beginning of the year, extending its 12-month returns to 72.76%. The stock closed at $15.60 per share on July 29, 2021.
Here is what Maran Capital Management has to say about Pure Cycle Corporation in its Q2 2021 investor letter:
“Pure Cycle owns approximately 5,000 single-family housing lot equivalents and a water utility backed by meaningful water rights in the Denver metro area.
I attended Pure Cycle’s investor day last week. It was great to see the progress the company has made at its Sky Ranch community (see photo below). I continue to believe that PCYO has $10+ per share of real estate value and $10+ per share of water value, and that each are being actively monetized (the land at $100k+/lot, and the water via $30k+ tap fees, each of which are appreciating rapidly). I believe the market is still missing a number of critical components of the PCYO story, including:
• A respected nonprofit intends to spend $50mm to build a charter school in PCYO’s community, which should dramatically increase the value of PCYO’s remaining lots;
• value uplift as PCYO starts to develop commercial acreage;
• optionality on additional water sales to the energy industry;
• numerous off-balance-sheet hidden assets, including the rights to a large reservoir; and
• additional capital-allocation-driven upside, including value-accretive land purchases.”
![Countries with the Cleanest Tap Water in the World in 2018](https://imonkey-blog.imgix.net/blog/wp-content/uploads/2017/11/22104554/water-2296444_1920.jpg?auto=fortmat&fit=clip&expires=1755993600&width=480&height=342)
Pixabay/Domain
Based on our calculations, Pure Cycle Corporation (NASDAQ: PCYO) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. PCYO was in 10 hedge fund portfolios at the end of the first quarter of 2021, compared to 9 funds in the fourth quarter of 2020. Pure Cycle Corporation (NASDAQ: PCYO) delivered a 2.16% 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.