LRT Capital Management, an investment management firm, published its second-quarter 2021 investor letter – a copy of which can be downloaded here. A return of +29.68% was recorded by the LRT Economic Moat strategy for the Q2 of 2021, extending its 12-month returns to +42.18%. 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 LRT Capital, the fund mentioned Stepan Company (NYSE: SCL), and discussed its stance on the firm. Stepan Company is a Northfield, Illinois-based chemical manufacturing company, that currently has a $2.6 billion market capitalization. SCL delivered a -1.28% return since the beginning of the year, extending its 12-month returns to 2.64%. The stock closed at $117.79 per share on August 09, 2021.
Here is what LRT Capital has to say about Stepan Company in its Q2 2021 investor letter:
“Stepan is an under-the-radar company with a market capitalization of approximately $3.0b.48 The company is engaged in the manufacturing of specialty chemicals, primarily for the cleaning industry. The company’s products are the principal ingredients in consumer and industrial cleaning products such as washing detergents, as well as shampoos, body washes, and fabric softeners. The company’s specialty products include emulsifiers, food stabilizers, flavorings, and nutritional supplements.
Don’t let the dullness of the company’s products fool you. While Stepan operates in a commoditized industry, the company has been an efficient operator and has been able to expand margins over time. What looks on the surface like a cyclical, commoditized business is in fact a very resilient provider of key inputs to daily necessities such as body and household cleaning products. Due to its resilience through different economic cycles, Stepan has been able to increase its annual dividend for 54 years in a row. What’s more, payouts to shareholders did not come at the expense of reinvesting in the business. The company has grown earnings-per-share by a factor of 5x over the last two decades while maintaining returns on invested capital in the mid-teens.
Shares are -0.67% year-to-date and +9.68% over the past twelve months.”
Photo by National Cancer Institute on Unsplash
Based on our calculations, Stepan Company (NYSE: SCL) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. SCL was in 10 hedge fund portfolios at the end of the first quarter of 2021, compared to 12 funds in the fourth quarter of 2020. Stepan Company (NYSE: SCL) delivered a -14.30% 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.
