Third Avenue Management, an investment management firm, published its “Value Fund” third quarter 2021 investor letter – a copy of which can be downloaded here. A portfolio return of -1.89% was recorded by the fund for the third quarter of 2021, compared to the MSCI World Index, which returned 0.09% 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.
Third Avenue Management, in its Q3 2021 investor letter, mentioned Zillow Group, Inc. (NASDAQ: Z) and discussed its stance on the firm. Zillow Group, Inc. is a Seattle, Washington-based online real estate marketplace company with a $21.9 billion market capitalization. Zillow delivered a -32.82% return since the beginning of the year, while its 12-month returns are down by -4.90%. The stock closed at $87.20 per share on November 2, 2021.
Here is what Third Avenue Management has to say about Zillow Group, Inc. in its Q3 2021 investor letter:
“In the past, we have railed against the failure of inflation statistics to capture important developments related to housing costs. If that point was debatable then, it certainly is not now. In August, Zillow reported that its Home Value Index3 had risen 17.7% year-over-year. S&P Case Shiller has not yet reported its August home price figures but, in July, the index measured a 19.7% year over year increase, which had been preceded by an 18.7% increase in June and 16.9% in May, each a record at the time. Zillow’s Observed Rent Index rose by 11.5% year over year in August. Meanwhile, the U.S. Bureau of Labor Statistics calculated that “rent of primary residence” rose 2.1% year over year in August while “owners’ equivalent rent of residences” rose by 2.6%. If one were to accept Zillow’s Observed Rent Index data as a reasonably accurate depiction of the pace of rental rate increases—and it is similar to several other independent sources of national home rental data—the incorporation of that data into the CPI weighting system in August would have caused CPI to be measured at something like 8.1% rather than 5.3%.”
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Based on our calculations, Zillow Group, Inc. (NASDAQ: Z) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. Zillow was in 76 hedge fund portfolios at the end of the first half of 2021, compared to 82 funds in the previous quarter. Zillow Group, Inc. (NASDAQ: Z) delivered a -16.63% 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.
