Steel City Capital, an investment management firm, published its second quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly portfolio net return of 3.2% was recorded by the fund for the second quarter of 2021. Year-to-date, the Partnership gained 11.1%, net. 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 Steel City Capital, the fund mentioned SIGA Technologies, Inc. (NASDAQ: SIGA), and discussed its stance on the firm. SIGA Technologies, Inc. is a New York, New York-based pharmaceutical company, that currently has a $461.7 million market capitalization. SIGA delivered a -16.51% return since the beginning of the year, while its 12-month returns are up by -9.94%. The stock closed at $6.07 per share on July 26, 2021.
Here is what Steel City Capital has to say about SIGA Technologies, Inc. in its Q2 2021 investor letter:
“As “I go to print,” there’s a small possibility that SIGA Technologies (SIGA) is on the cusp of “meme stock” status, although I’m not holding my breath, and that’s certainly not the reason we own shares. SIGA is a commercial stage pharmaceutical company whose sole product, TPOXX, is an antiviral drug approved by the FDA for the treatment of smallpox. The company has an option-based contract to replenish the U.S. Government’s existing stockpile of the drug over the next several years. The remaining value of the contract if fully exercised – which I believe it will be – will generate more than $400 million in revenue for SIGA. The company is also pursuing a variety of growth initiatives both domestically and abroad. At recent prices, shares are trading at a mid-single digit P/E multiple.
So, what has made the company a viable “meme stock” candidate? As of this morning, more than 200 people in 27 states are being monitored for possible exposure to monkeypox after they had contract with an individual who contracted the disease in Nigeria before traveling to the United States this month. While SIGA’s drug is approved only for smallpox, the company is pursuing approval in Europe for indications that include smallpox, cowpox, and monkeypox. I believe the “Twittersphere” is starting to take notice of the connection. If nothing else, the monkeypox scare should reinforce to the U.S. Government and other governments around the world that deadly viral outbreaks are highly unpredictable yet unfortunately very possible. While we’re still learning lessons from COVID-19, I expect health and government officials around the world to make the calculation that it’s better to be prepared for such outbreaks before they occur. That should bode well for SIGA’s prospects.”
Based on our calculations, SIGA Technologies, Inc. (NASDAQ: SIGA) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. SIGA was in 13 hedge fund portfolios at the end of the first quarter of 2021, compared to 10 funds in the fourth quarter of 2020. SIGA Technologies, Inc. (NASDAQ: SIGA) delivered a -13.66% 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.
