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 Everest Re Group, Ltd. (NYSE: RE) and discussed its stance on the firm. Everest Re Group, Ltd. is a Bermuda-based insurance company with a $10.7 billion market capitalization. RE delivered a 17.11% return since the beginning of the year, while its 12-month returns are up by 14.80%. The stock closed at $274.15 per share on November 12, 2021.
Here is what Longleaf Partners Small-Cap Fund has to say about Everest Re Group, Ltd. in its Q3 2021 investor letter:
“Everest Re (4%, 0.20%), the insurance company, contributed. Underwriting results were excellent in a cyclically strong market with an 89% combined ratio for the quarter, 39% growth in net written reinsurance premiums, and a 26% increase in primary lines. The fund has successfully owned Everest Re shares on and off since 2004 and we have rarely witnessed better conditions in the reinsurance market. However we were disappointed again by Everest’s capital allocation, particularly swapping a long-held conservative bond allocation into private equity at a moment of extremely risky high valuations. We sold the position for a solid gain after five quarters of ownership because Renaissance Re (Ren Re) presented a superior opportunity in the industry. Ren Re has a strong underwriting engine as well as a growing third-party capital segment with recurring fee-income worth a significantly higher multiple than the company’s 11x price to earnings ratio (P/E) price at the time of our purchase.”
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Based on our calculations, Everest Re Group, Ltd. (NYSE: RE) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. RE was in 30 hedge fund portfolios at the end of the first half of 2021, compared to 32 funds in the previous quarter. Everest Re Group, Ltd. (NYSE: RE) delivered a 0.91% 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.
