Harding Loevner, an investment management firm, published its “Global Small Companies Equity Fund” second-quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly net return of 6.82% was recorded by the fund for the Q2 of 2021, beating its Benchmark, the MSCI All Country World Small Cap Index, which returned 5.79% for the same period. You can take a look at the fund’s top 5 holdings to have an idea about their top bets for 2021.
In the Q2 2021 investor letter of Harding Loevner, the fund mentioned Signature Bank (NASDAQ: SBNY) and discussed its stance on the firm. Signature Bank is a United States-based commercial banking company with a $15.8 billion market capitalization. SBNY delivered a 92.76% return since the beginning of the year, while its 12-month returns are up by 210.46%. The stock closed at $260.79 per share on September 24, 2021.
Here is what Harding Loevner has to say about Signature Bank in its Q2 2021 investor letter:
“First Republic is a large cap company now, but it was a small cap less than ten years ago. Our challenge for the Global Small Companies strategy is to find the next First Republic. Signature Bank, which operates primarily in the large and highly penetrated New York City metro market, is a contender. Many of its clients are small- and medium-sized businesses, with a significant number in commercial real estate and apartment buildings. Rather than 1-800 numbers and phone trees, each Signature client has a single point of contact with a relationship manager and his or her team, who service all of the client’s needs. Signature’s relationship managers have lending authority, and their compensation is linked to their own results. This structure served Signature and its clients well during the pandemic, which was expected to be a disaster for the bank’s commercial real estate portfolio. Its loan deferrals, which peaked at 26% of loans in July 2020, fell to 1.9% by March of this year as the bank worked individually with clients to return them to regular payment status.
Signature’s client relationships also led them to new growth opportunities in cryptocurrency. Three years ago, the bank began offering a digital system to meets its clients need for round-the-clock payments. This eventually led the bank to offer crypto-based payments, services also useful to cryptocurrency exchanges and other players in the digital currency space, which are now using the Signature system and making substantial deposits into the bank.”
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Based on our calculations, Signature Bank (NASDAQ: SBNY) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. SBNY was in 43 hedge fund portfolios at the end of the first half of 2021, compared to 40 funds in the previous quarter. Signature Bank (NASDAQ: SBNY) delivered a 1.70% 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.
