Bernzott Capital Advisors, an investment management firm, published its “US Small Cap Value Fund” second-quarter 2021 investor letter – a copy of which can be downloaded here. The fund recorded a quarterly portfolio return of +1.5% for the second quarter of 2021, compared to its benchmarks, the R200V Index that was up by 4.29%, and the R2500V Index which gained 5.0% for the same period. You can view the fund’s top 5 holdings to have an idea about their top bets for 2021.
In the Q2 2021 investor letter of Bernzott Capital, the fund mentioned Air Transport Services Group, Inc. (NASDAQ: ATSG) and discussed its stance on the firm. Air Transport Services Group, Inc. is a Wilmington, Ohio-based aviation holding company with a $2.02 billion market capitalization. ATSG delivered a -12.80% return since the beginning of the year, while its 12-month returns are up by 5.81%. The stock closed at $27.33 per share on August 20, 2021.
Here is what Bernzott Capital has to say about Air Transport Services Group, Inc. in its Q2 2021 investor letter:
“Air Transportation Services (ATSG): Demand for the company’s leased air freighters for time-definite transportation networks has been jumpstarted in recent years by e-commerce growth. The company’s order book is its strongest ever, with contract terms lengthening in some cases. This provides excellent long-term visibility with a more stable earnings profile than other transportation companies. The prospects for significant cash flow growth are bright. The company operates roughly half of Amazon’s freighters, and Amazon owns 19.5% of the company. DHL is also a significant, long-term customer. The Department of Defense is the company’s largest customer, as ATSG handles both passengers and freight for the military. This business, along with a smaller passenger charter operation, should stabilize in 2021 after pandemic-induced weakness, and shift to a tailwind in 2022. ATSG trades at just 7x EV/EBITDA and offers attractive upside potential.”
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Based on our calculations, Air Transport Services Group, Inc. (NASDAQ: ATSG) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. ATSG was in 19 hedge fund portfolios at the end of the first half of 2021, compared to 18 funds in the previous quarter. Air Transport Services Group, Inc. (NASDAQ: ATSG) delivered a 12.47% 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.
