Greenlight Capital, an investment management firm, published its “Global Growth Fund” second quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly return of -2.9%% was recorded by the fund for the second quarter of 2021, compared to 8.5% for its e S&P 500 benchmark. 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 Greenlight Capital, the fund mentioned Graphic Packaging Holding Company (NYSE: GPK), and discussed its stance on the firm. Graphic Packaging Holding Company is a Atlanta, Georgia-based paperboard mills company, that currently has a $5.8 billion market capitalization. GPK delivered a 13.16% return since the beginning of the year, extending its 12-month returns to 37.52%. The stock closed at $19.17 per share on July 30, 2021.
Here is what Greenlight Capital has to say about Graphic Packaging Holding Company in its Q2 2021 investor letter:
“The U.S. has added so little paperboard capacity that the average mill in this country is over 30 years old. The industry operates at around 93% capacity and demand is growing both with consumption and due to ESG-driven substitution of paper packaging instead of plastics and Styrofoam. The industry is consolidated with just a few players, capable of exerting pricing power. We don’t expect anyone to build a new plant anytime soon.
We own Graphic Packaging (GPK), which is the lowest cost producer with the largest market share and is poised to benefit from rising prices. It trades at 13x consensus earnings estimates.
The point is, we believe we have reached a structural change in inflation. Part of that is driven by public policy, but part of it has been driven by capital markets and ESG mandates. The enormous emphasis on investing in often money-losing businesses in disruptive areas like technology has left traditional industries starved for growth capital. The result is they haven’t grown capacity and now they cannot meet demand. The more these “value” stocks are starved of capital, the higher prices are likely to go and the longer the inflation is likely to last.
And this doesn’t even begin to address the rising cost of labor. Currently, there is a labor shortage and there are approximately 9 million open jobs according to the latest government data. In the coming months, unemployment benefits will be cut. This will drive some of the unemployed back into the workforce. Deflationists believe it will be enough to end the labor shortage. However, since people can collect benefits without being required to look for work, it is unclear how many benefit collectors are happy to receive benefits, but have no plans to rejoin the labor force. It will take time to determine how much of the labor shortage is structural.
We know what the President wants – if you are having trouble finding enough labor, “pay them more.” Sounds like a wage inflation policy to us.”
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Based on our calculations, Graphic Packaging Holding Company (NYSE: GPK) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. GPK was in 21 hedge fund portfolios at the end of the first quarter of 2021, compared to 26 funds in the fourth quarter of 2020. Graphic Packaging Holding Company (NYSE: GPK) delivered a 3.34% 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.
