Investment management firm, Davis Advisers, released its “Davis Financial Fund” 2022 annual investor letter. A copy of the same can be downloaded here. In 2022, the fund declined −8.91% slightly outperforming the S&P 500 Financials Index which returned −10.53%. Investments in property and casualty (P&C) insurance, foreign banks, and Berkshire Hathaway were the primary contributors while U.S. bank and consumer-lending holdings detracted from the performance. In addition, please check the fund’s top five holdings to know its best picks in 2022.
Davis Financial Fund highlighted stocks like Rocket Companies, Inc. (NYSE:RKT) in its 2022 annual investor letter. Headquartered in Detroit, Michigan, Rocket Companies, Inc. (NYSE:RKT) is a fintech holding company. On March 10, 2023, Rocket Companies, Inc. (NYSE:RKT) stock closed at $8.06 per share. One-month return of Rocket Companies, Inc. (NYSE:RKT) was -9.13%, and its shares lost 22.13% of their value over the last 52 weeks. Rocket Companies, Inc. (NYSE:RKT) has a market capitalization of $16.018 billion.
Davis Financial Fund made the following comment about Rocket Companies, Inc. (NYSE:RKT) in its 2022 annual investor letter:
“We first purchased a small position in residential mortgage lender, Rocket Companies, Inc. (NYSE:RKT), on its initial public offering in the summer of 2020. The country was in the middle of a massive refinancing boom, and as the leading mortgage originator, Rocket was earning approximately $3 billion per quarter (pretax). While the then-high level of profitability certainly influenced the math of valuation, by no means was it the whole story, as it was anticipated that origination volumes would be cyclical. Rocket, which continues to be controlled by its founder Dan Gilbert, had built a digitally driven platform in an otherwise labor-intensive industry, which we believe is an enduring source of competitive advantage.
As long-term interest rates began to rise in late 2021, the wave of refinancing volumes began to slow, and in 2022 they fell off a cliff. Rocket will earn little if any money in 2022, and profits in 2023 likely will again be meager. But the company’s stock price declined by more than half over this period. To us this seems like a case where everyone knows that the sector is facing challenges, but not everyone acknowledges what is priced into the stock. Davis Financial Fund nearly doubled its position in Rocket Companies in 2022 at much lower prices. Yes, the flow of mortgage originations has dried up for now, but the stock of mortgages outstanding has increased by 18% to $12 trillion in the past three years.10 And the value of homes increased by an even greater rate, meaning that loan-to-value ratios have actually fallen. People do eventually move homes, or they will look to tap into their home equity for myriad purposes, and Rocket will be there to help them finance those transactions.”
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Rocket Companies, Inc. (NYSE:RKT) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 20 hedge fund portfolios held Rocket Companies, Inc. (NYSE:RKT) at the end of the fourth quarter which was 15 in the previous quarter.
We discussed Rocket Companies, Inc. (NYSE:RKT) in another article and shared the list of large-cap stocks with insider buying. In addition, please check out our hedge fund investor letters Q4 2022 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
