Longleaf Partners Fund, a Memphis-based fund under Southeastern Asset Management, published its “Longleaf Partners Global Fund” second quarter 2021 investor letter – a copy of which can be downloaded here. A portfolio quarterly return of 1.27% was recorded by the fund for the second quarter of 2021, taking year-to-date (YTD) returns to 14.63% while its benchmark, the MSCI World Index, by comparison returned 7.74% and 13.05% over the same periods. You can view the fund’s top 5 holdings to have an idea about their top bets for 2021.
In the Q2 2021 investor letter of Longleaf Partners Global Fund, the fund mentioned MGM Resorts International (NYSE: MGM), and discussed its stance on the firm. MGM Resorts International is a Las Vegas, Nevada-based hospitality and entertainment company, that currently has a $19.5 billion market capitalization. MGM delivered a 26.34% return since the beginning of the year, extending its 12-month returns to 109.20%. The stock closed at $39.81 per share on August 06, 2021.
Here is what Longleaf Partners Global Fund has to say about MGM Resorts International in its Q2 2021 investor letter:
“The investments in the preceding paragraph have been long-term holdings, but what about our newer purchases? We have heard from long-time Southeastern/Longleaf observers who look at these stock charts and ask, “How can that still be cheap?” We continue to focus on the importance of value growth and dynamically updating our appraisals. MGM for example has seen very strong value growth since our purchase last year as the company’s properties in the US have rebounded much stronger than even the biggest optimists predicted. Management and the board have reduced risk by monetizing more of MGM’s holdings in MGM Growth Properties, its real estate subsidiary. There is still plenty of value to be added in the online division as well. All this leads to a value per share that was in the $30s last year now approaching $50. The company remains attractively discounted, even after price appreciated 101% since we first bought the stock 9 months ago.
MGM (12%, 0.43%), the casino and online gaming company, was a top contributor as it reported a solid first quarter with Vegas EBITDAR (earnings before interest, taxes, depreciation, amortization and restructuring or rent costs) doubling sequentially and Regional EBITDAR actually growing strongly YOY due to exceptional cost control. The second quarter saw clear signs of even more growth with a strong rebound in travel to the company’s US properties. MGM also continued to de-risk its value and balance sheet by selling over $1 billion of fully valued shares of its real estate subsidiary MGM Growth Properties in the quarter. On the first day of July, the company announced a transaction to consolidate and sell the real estate of its CityCenter project at a price that was accretive to our value per share. “
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Based on our calculations, MGM Resorts International (NYSE: MGM) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. MGM was in 57 hedge fund portfolios at the end of the first quarter of 2021, compared to 44 funds in the fourth quarter of 2020. MGM Resorts International (NYSE: MGM) delivered a -0.28% 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.
