Summers Value Partners, an investment management firm, published its “Summers Value Fund” third quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly return of -.4% net of fees was recorded by the fund for the third quarter of 2021, outpacing the Russell 2000 Index return of -4.6% and the Russell Micro-Cap Index return of -5.4%. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.
Summers Value Partners, in its Q3 2021 investor letter, mentioned Electromed, Inc. (NYSE: ELMD) and discussed its stance on the firm. Electromed, Inc. is a New Prague, Minnesota-based medical device company with a $94.1 million market capitalization. ELMD delivered a 12.03% return since the beginning of the year, while its 12-month returns are up by 26.32%. The stock closed at $10.99 per share on October 15, 2021.
Here is what Summers Value Partners has to say about Electromed, Inc. in its Q3 2021 investor letter:
“We have long lamented Electromed’s low valuation relative to medical device peers and to our estimate of its intrinsic value. We nominated a slate of qualified directors in early August following several years of trying to promote positive change at the company. After two months of negotiations, we signed a cooperation agreement that can be found here. The agreement includes the announcement of two new directors who will replace two long-time directors including the Chairman. The agreement also includes the formation of a Finance and Strategy Committee to explore options to enhance shareholder value. While we were negotiating with the company, two of its competitors were acquired including Hill-Rom (HRC) and International Biophysics’ (private) AffloVest business. Based on the multiples paid for these two peers, we believe that Electromed could be worth up to $25 per share in an acquisition scenario. We are encouraged by the refreshed board of directors and the formation of the Committee. Our standstill agreement expires before next year’s nomination period. This will allow us to re-engage with the company if meaningful progress towards shareholder value creation is not achieved.”
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Based on our calculations, Electromed, Inc. (NYSE: ELMD) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. ELMD was in 6 hedge fund portfolios at the end of the first half of 2021, compared to 5 funds in the previous quarter. Electromed, Inc. (NYSE: ELMD) delivered a -5.75% 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.
