Artko Capital LP, an investment management firm, has released its second quarter 2021 letter to investors – a copy of which can be downloaded here. The fund returned 0.5% for the second quarter of 2021, underperforming the S&P 500 Index, the Russell 2000 and the Russell Microcap Index, which returned 8.6% respectively, 4.3% and 4.1% for the same period. . You can check out the top 5 holdings of the fund to get an idea of ââtheir top bets for 2021.
In Artko Capital’s Q2 2021 letter to investors, the fund mentioned Global Indemnity Group, LLC (NASDAQ: GBLI) and discussed its position on the company. Global Indemnity Group, LLC is a Bala Cynwyd, Pennsylvania-based compensation company with a market capitalization of $ 391.2 million. GBLI has achieved a return of -5.39% year-to-date, while its 12-month returns are up 26.76%. The stock closed at $ 27.00 per share on September 23, 2021.
Here’s what Artko Capital has to say about Global Indemnity Group, LLC in its Q2 2021 letter to investors:
“Global Compensation Group (GBLI) – Over the past two quarters, we have built a 6% position at an average price of around $ 27.00 per share, in what we would consider a special situation investment, in a specialty insurer with a capitalization of 320 millions of dollars. GBLI offers specialty commercial, specialty property, farm, ranch and stable insurance products in the United States and financial reinsurance products worldwide. While the company has always been statistically cheap, trading on average at 0.7x book value and almost 0.5x today, that was for good reason, as its average return on equity has hovered in a low number compared to the industry average of 8% +. Our interest in this position is mainly related to events. About a year ago, the company went through a shareholder-approved re-domestication transaction that freed up more than $ 250 million in regulatory capital. While management has yet to prove that it is shareholder-friendly and that there are questionable arm’s-length transactions, we believe shareholder pressure, including the involvement of a well-known activist company in small cap, Harbert Discovery Fund, is likely in a shareholder-friendly transaction such as a special dividend payout in the range of 50% to 75% of the current share price. The company has repeatedly postponed its Investor Day to 2021, but we believe that scheduled for September 2021 will give shareholders the answers they are looking for in terms of the company’s allocation of its new found capital. In the meantime, we believe that the low valuation and a dividend yield of around 4.0% give us the margin of safety to make this a significant Enhanced Value portfolio position. “
Based on our calculations, Global Indemnity Group, LLC (NASDAQ: GBLI) was unable to land a spot on our list of the 30 most popular stocks among hedge funds. GBLI was in 5 hedge fund portfolios at the end of the first half of 2021, compared to 3 funds in the previous quarter. Global Indemnity Group, LLC (NASDAQ: GBLI) has generated a return of -0.99% in the past 3 months.
The reputation of hedge funds as savvy investors has been tarnished over the past decade, as their hedged returns could not keep up with the unhedged returns of stock indices. Our research has shown that small cap hedge fund stock selection managed to beat the market by double digits every year between 1999 and 2016, but the margin for outperformance has shrunk in recent years. Nonetheless, we were still able to identify in advance a select group of hedge funds that have outperformed S&P 500 ETFs by 115 percentage points since March 2017 (see details here). We were also able to identify in advance a select group of hedge funds that underperformed the market by 10 percentage points per year between 2006 and 2017. Interestingly, the margin of underperformance of these stocks has increased in recent years. Investors who are long in the market and short on these stocks would have reported more than 27% per year 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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