White Brook Capital, an investment management firm, published its third-quarter 2021 investor letter – a copy of which can be downloaded here. A portfolio return of -5.86% was recorded by the fund for the third quarter of 2021, underperforming its S&P 400 benchmark that delivered a -1.76% return for the same period. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.
White Brook Capital, in its Q3 2021 investor letter, mentioned Qurate Retail, Inc. (NASDAQ: QRTEA) and discussed its stance on the firm. Qurate Retail, Inc. is a Douglas County, Colorado-based media conglomerate with a $4.1 billion market capitalization. QRTEA delivered a -6.93% return since the beginning of the year, while its 12-month returns are up by 37.79%. The stock closed at $10.21 per share on October 21, 2021.
Here is what White Brook Capital has to say about Qurate Retail, Inc. in its Q3 2021 investor letter:
“Qurate Retail (QRTEA) was bought during the 3rd quarter. Qurate’s largest business is broadcast video shopping channels Home Shopping Network (HSN) and QVC. These channels cater to an older, mostly female clientele and has proven to be more durable than many have expected. The opportunity for Qurate is in online video shopping – a category that is being unsuccessfully targeted by the largest players in online shopping – including Amazon, Facebook, Pinterest, and Google. Qurate has compelling personalities and the technical knowhow on how to best present and maximize sales in video format and can port those skills to the online format. The price for the stock indicates that the marginal seller of the stock doesn’t appreciate that online video shopping is different from shopping online as the presenter and the presentation – not only the good – is content and the reason that a potential consumer engages and then buys. This is hard, Qurate does it well, and many merchants need those skills.
The Company also has independent fulfillment – a boon for sellers who might not want to rely on Amazon or Facebook to succeed. Today, many publishers use Amazon affiliate links to derive 100% profit margin revenue by referring viewers of their content to Amazon to purchase covered items there. A good first step, but I expect content producers to move away from Amazon’s affiliate links and increasingly run independent e-commerce stores. Qurate has the assets and strategic flexibility to help provide those services.
Critically, this long term growth opportunity is occurring in the short term and the market should be able to understand whether Qurate has traction providing these services relatively quickly. Critically, repositioning assets for online video has few incremental costs for Qurate and the revenue opportunity is large. If they have any success pivoting online, I believe the stock is very undervalued, and we’ll do well, while if they do better than that, the returns could be great. If they are unsuccessful, the Company will continue to generate significant cash flow and is guided by owners and managers who understand the value of returning unproductive cash to shareholders – limiting the downside. There’s a likelihood they are able to do both – return capital and grow the business and total shareholder returns could be best in class over the next couple years.”
Photo by Scott Graham on Unsplash
Based on our calculations, Qurate Retail, Inc. (NASDAQ: QRTEA) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. QRTEA was in 39 hedge fund portfolios at the end of the first half of 2021, compared to 31 funds in the previous quarter. Qurate Retail, Inc. (NASDAQ: QRTEA) delivered a -13.77% 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.
