LRT Capital Management, an investment management firm, published its fourth-quarter 2021 investor letter – a copy of which can be downloaded here. A return of +30.47% was recorded by the LRT Economic Moat strategy year-to-date, putting its 24-month return to +4.34%. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.
LRT Capital Management, in its Q4 2021 investor letter, mentioned Credit Acceptance Corporation (NASDAQ: CACC) and discussed its stance on the firm. Credit Acceptance Corporation is a Southfield, Michigan-based auto finance company with a $7.8 billion market capitalization. CACC delivered a -19.16% return since the beginning of the year, while its 12-month returns are up by 46.79%. The stock closed at $555.91 per share on March 03, 2022.
Here is what LRT Capital Management has to say about Credit Acceptance Corporation in its Q4 2021 investor letter:
“Credit Acceptance Corp is a very controversial company as it is a subprime auto lender known for aggressive collection and repossession tactics. The subprime auto business is very difficult requiring both underwriting skills and the ability to navigate the ever-changing legal and political environments of lending to low-income consumers. The company has been accused in the past of illegal collection practices and predatory lending schemes. With all of that, why do we hold the shares? Over the past two decades, CACC has carved out a strong presence in an otherwise very difficult market (where many others have failed) and enjoys enviable economics. It turns out that borrowing at 5% and lending at 25% is a profitable business – if you can collect.
The company’s high returns on capital and disciplined capital allocation have produced outstanding results for shareholders – over 20% annual returns for over 20 years (we are in rarefied air here). We admire the company for playing the long game and not chasing growth for growth’s sake, but rather letting volumes decline in response to increased competition and/or slowing demand. For example, when the company reported a sharp decline in new loan volume in June 2021, the shares promptly fell 10% – a short term price for the discipline the company has shown in not chasing unprofitable growth.
The company remains controversial, operates in a highly regulated environment and is subject to periodic investigations and government fines. Some politicians have advocated banning subprime financing outright. While we recognize the risks, we are happy to hold the shares for now given the company’s attractive valuation and favorable risk-reward.”
Our calculations show that Credit Acceptance Corporation (NASDAQ: CACC) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. CACC was in 26 hedge fund portfolios at the end of the fourth quarter of 2021, compared to 25 funds in the previous quarter. Credit Acceptance Corporation (NASDAQ: CACC) delivered a -13.56% return in the past 3 months.
In January 2022, we also shared another hedge fund’s views on CACC in another article. You can find other letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.
Disclosure: None. This article is originally published at Insider Monkey.
