Miller/Howard Investments, an investment management firm, published its first quarter 2021 investor letter – a copy of which can be downloaded here. Miller/Howard’s Infrastructure Strategy remains well-positioned to capitalize on momentum toward value and income stocks. The strategy has a yield over twice that of the S&P 500 and is trading well-below the broader market’s EV/EBITDA. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.
Miller/Howard Investments, in its Q1 2021 investor letter, mentioned Kansas City Southern (NYSE: KSU), and shared their insights on the company. Kansas City Southern is a Kansas City, Missouri-based pure transportation holding company that currently has a $26.1 billion market capitalization. Since the beginning of the year, KSU delivered a 28.30% return, extending its 12-month gains to 70.69%. As of June 16, 2021, the stock closed at $290.27 per share.
Here is what Miller/Howard Investments has to say about Kansas City Southern in its Q1 2021 investor letter:
“Canadian Pacific Railway (CP) agreed to acquire Kansas City Southern (KSU) in the largest rail deal in over a decade. The merger will create the first rail network connecting Canada, the US, and Mexico, and it should benefit from the passage of the USMCA Trade Agreement. We initiated a position in KSU in Q4 as we expected it to benefit from growing North American trade and viewed it as a consolidation candidate.”
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Our calculations show that Kansas City Southern (NYSE: KSU) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the first quarter of 2021, Kansas City Southern was in 49 hedge fund portfolios. KSU delivered a 28.81% 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.
