RGA Investment Advisors LLC, an investment management firm, published its third-quarter 2021 investor letter – a copy of which can be downloaded here. The fund encouraged existing and prospective clients alike that despite the pains of the past decade, investments in high-quality and reasonably priced equities were well-timed and would be rewarded in the years to come. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.
RGA Investment Advisors, in its Q4 2021 investor letter, mentioned Stitch Fix, Inc. (NASDAQ:SFIX) and discussed its stance on the firm. Founded in 2011, Stitch Fix, Inc. (NASDAQ:SFIX) is a San Francisco, California-based online personal styling services provider with a $1.1 billion market capitalization, and is currently spearheaded by its CEO, Katrina Lake. Stitch Fix, Inc. (NASDAQ:SFIX) delivered a -42.55% return since the beginning of the year, while its 12-month returns are down by -79.33%. The stock closed at $10.87 per share on March 18, 2022.
Here is what RGA Investment Advisors has to say about Stitch Fix, Inc. (NASDAQ:SFIX)) in its Q4 2021 investor letter:
“Typically we give investments a year in order to truly judge whether they work or not. The reality is that markets have moved way too quickly in both directions over the past two years and thus we left ourselves in a quandary preferencing inaction when action should have been taken. One of the core tenets and intersections of our analysis and position management has held that we need one or two key variables to distill and simplify a thesis down to and follow as our North Star. When we wrote up Stitch Fix in our Q2 2021 commentary, we specifically said “We expect active client growth to be the foremost driver of the business growth, despite evidence that Direct Buy will drive growing wallet share.” In each of the three earnings reports following our purchase of Stitch Fix, active client growth slowed sequentially while wallet share (revenue per active client) grew. In studying the company, rising wallet share was an important indicator that Direct Buy (now Freestyle) would not cannibalize the core business and help grow even with existing customers. We allowed this to slip into what is a solid, though not investable idea–the idea that rising wallet share would be a leading indicator of accelerating client growth, given two factors: 1) rising wallet share means higher LTVs, allowing the company to pay more to acquire customers at the same rates of return; and, 2) rising wallet share proved an enhanced value prop which validates the product direction.
However, while easy to say in hindsight, we know that logic is not sound and should be something we consciously avoid in the future. Put simply, our thesis was premised on Freestyle broadening the appeal of the company’s offering and leading to accelerating customer acquisition. Absent actual evidence of accelerating customer growth itself, even with rising wallet share, we should move aside and watch. In other words, our intrigue was worth keeping Stitch Fix as a company we watch actively, but not one we invest in. This is a mistake plain and simple. We have often spoken about the two kinds of wrongs in investing: overt mistakes of analysis versus those situations that end up in the wrong end of the return distribution. Stitch Fix was not an investment that ended up in the wrong end of the return distribution, but for the right reasons. It is an impairment of capital that we will have to find another way to earn back. We promise to you that this exact same mistake will not be repeated again (though we are likely to learn other humbling lessons along the way).”
Our calculations show that Stitch Fix, Inc. (NASDAQ:SFIX) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. Stitch Fix, Inc. (NASDAQ:SFIX) was in 35 hedge fund portfolios at the end of the fourth quarter of 2021, compared to 30 funds in the previous quarter. Stitch Fix, Inc. (NASDAQ:SFIX) delivered a -39.41% return in the past 3 months.
In January 2022, we also shared another hedge fund’s views on Stitch Fix, Inc. (NASDAQ:SFIX) 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.
