Oakmark Funds, an investment management firm, published its “Oakmark Global Fund” second quarter 2021 investor letter – a copy of which can be seen here. A return of 6.48% was reported by the fund for the Q2 of 2021, below both its MSCI World benchmark that delivered a 7.7% return and the Lipper Global Fund Index that had a 7.9% gain 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 Oakmark Funds, the fund mentioned Tenet Healthcare Corporation (NYSE: THC) and discussed its stance on the firm. Tenet Healthcare Corporation is a Dallas, Texas-based healthcare company with a $7.9 billion market capitalization. THC delivered an 86.60% return since the beginning of the year, extending its 12-month returns to 158.63%. The stock closed at $73.56 per share on August 26, 2021.
Here is what Oakmark Funds has to say about Tenet Healthcare Corporation in its Q2 2021 investor letter:
“Tenet Healthcare has also experienced significant challenges during its time in the Fund, most recently in early 2020 when investors feared the impact of Covid-19 on the company’s hospitals and ambulatory care centers. However, management has worked diligently for many years to reposition the company, and with the Covid-19 crisis resolving, these efforts have begun to bear fruit. The share price has rebounded and achieved the leading percentage return in the Fund for the past nine months.
When the Fund first invested in Tenet in 2011, we saw the company as an undervalued turnaround situation, buoyed by solid management and significant asset values. The company owns most of its medical facilities, including the underlying real estate, and similar to many other real estate heavy enterprises, Tenet struggled during the 2008-09 financial crisis. Bad debts at the company’s hospitals also contributed to losses during the time. These temporary troubles gave us the opportunity to establish a position at an attractive price. We identified several ways that the company could increase profit margins and we also anticipated the company would benefit from various governmental health care initiatives. Over the next few years, our thesis began to play out, yet a large acquisition at the time increased debt, added complexity and distracted management. In 2017, new management took over and began to focus the company on ambulatory care centers and, in turn, sold off some of the acute care hospitals. Today, the majority of Tenet’s profits come from faster growing outpatient centers, its profit margins are growing meaningfully and the management team has far more financial flexibility. Although this investment is taking longer to mature than many, the stock currently sells for more than three times the Fund’s average cost and has been a successful holding.”
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Based on our calculations, Tenet Healthcare Corporation (NYSE: THC) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. THC was in 39 hedge fund portfolios at the end of the first half of 2021. Tenet Healthcare Corporation (NYSE: THC) delivered an 11.60% 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.
