L1 Capital, an investment management firm, published its ‘L1 Capital International Fund’ third quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly net return of 3.7% was recorded by the fund in the second quarter of 2021, compared to the benchmark return of 3.9% You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.
L1 Capital, in its Q3 2021 investor letter, mentioned Activision Blizzard, Inc. (NASDAQ: ATVI) and discussed its stance on the firm. Activision Blizzard, Inc. is a Santa Monica, California-based video game company with a $51.7 billion market capitalization. ATVI delivered a -28.42% return since the beginning of the year, while its 12-month returns are down by -13.81%. The stock closed at $70.43 per share on November 15, 2021.
Here is what L1 Capital has to say about Activision Blizzard, Inc. in its Q3 2021 investor letter:
“Activision Blizzard is the largest video gaming business in the world outside of China. It owns numerous enduring franchises such as Call of Duty, Warcraft, Diablo, Overwatch and Candy Crush. The L1 Capital International investment team has an intimate and detailed knowledge of Activision Blizzard’s content. It is highly challenging and rare for a company to be able to repeatedly create mass appeal, high budget video games (known as AAA games). Activision Blizzard’s consistent ability to monetise key franchise titles is among the best. However, content is episodic and visibility and timing for the upcoming pipeline of games is not always easy to assess.
We maintain a strict discipline around valuation for all investments. Share prices are often much more volatile than our intrinsic valuation assessment for a business. In particular, Activision Blizzard’s share price is often driven by short term sentiment, both positive and negative. Recently, negative sentiment has been exacerbated by human resources issues which the company is addressing, including senior management departures. Over the past two and a half years, we have taken advantage of market sentiment and short-term pressures on Activision Blizzard to twice profitably invest and then divest in Activision Blizzard. We believe current circumstances present another such opportunity and have re-established a position in Activision Blizzard. We will proactively engage with the company on improvements in human resources policies and enforcement, as the company moves into an 18-month period of significant content releases across the company’s stalwart franchises.”
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Based on our calculations, Activision Blizzard, Inc. (NASDAQ: ATVI) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. ATVI was in 78 hedge fund portfolios at the end of the first half of 2021, compared to 76 funds in the previous quarter. Activision Blizzard, Inc. (NASDAQ: ATVI) delivered a -20.28% 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.
