Longleaf Partners Fund, a Memphis-based fund under Southeastern Asset Management, published its “Longleaf Partners Small-Cap Fund” third quarter 2021 investor letter – a copy of which can be downloaded here. Longleaf Partners Small-Cap Fund fell 4.20% in the third quarter, narrowly ahead of the Russell 2000 Index’s 4.36% decline in the period. The Fund has delivered positive absolute returns year-to-date, adding 9.10%, but it trails the Index’s 12.41% return for the year. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.
Longleaf Partners Small-Cap Fund, in its Q3 2021 investor letter, mentioned Empire State Realty Trust, Inc. (NYSE: ESRT) and discussed its stance on the firm. Empire State Realty Trust, Inc. is a Manhattan, New York-based real estate investment trust company with a $1.8 billion market capitalization. ESRT delivered a 12.77% return since the beginning of the year, while its 12-month returns are up by 26.63%. The stock closed at $10.51 per share on November 12, 2021.
Here is what Longleaf Partners Small-Cap Fund has to say about Empire State Realty Trust, Inc. in its Q3 2021 investor letter:
“Empire State Realty Trust (ESRT) also detracted for various reasons in the quarter that are out of whack vs. their positive value development this year and likely future actions. ESRT’s stock price traded down and back up in the quarter as the delta variant waxed and waned. We had neither banked on a speedy return to the office nor an immediate resumption of international tourists filling the Empire State Building Observatory, so our value was not impacted. We would point to how the company has a demonstrated history of repurchasing shares below net asset value.
Empire State Realty Trust (-16%, -1.01%), the iconic New York City commercial real estate and tourism company, was the top detractor, as discussed above. A retail tenant filing for bankruptcy hurt the stock, but we expect its Empire State Building office space to be quickly re-leased at a higher rent due to Manhattan’s post-COVID reopening and rebounding office market. Observatory tickets are up to 30% of the 2019 level and should continue rebounding over the next year plus. We also believe the company remains on offense when it comes to capital allocation.”
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Based on our calculations, Empire State Realty Trust, Inc. (NYSE: ESRT) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. ESRT was in 15 hedge fund portfolios at the end of the first half of 2021, compared to 11 funds in the previous quarter. Empire State Realty Trust, Inc. (NYSE: ESRT) delivered a -0.85% 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.
