Alliance Data System (ADS) Gave Alphyn Capital a Valuable Lesson

Alphyn Capital Management, an investment management firm, published its fourth-quarter 2020 Investor Letter – a copy of which can be downloaded here. A net return of 17.2% was recorded by the fund for the Q4 of 2020, above its S&P 500 benchmark that returned 11.7%. You can view the fund’s top 10 holdings to have a peek at their top bets for 2021.

Alphyn Capital Management, in their Q4 2020 Investor Letter said that they had cut their position in Alliance Data Systems Corporation (NYSE: ADS) and admitted that the investment in the company was a mistake. Alliance Data Systems Corporation is a loyalty, marketing and payment solutions provider company that currently has a $3.3 billion market cap. For the past 3 months, ADS delivered a decent 29.86% return and settled at $67.58 per share at the closing of January 27th.

Here is what Alphyn Capital Management has to say about Alliance Data Systems Corporation in their investor letter:

“My investment in Alliance Data Systems was a mistake, as mentioned in my Q1 letter. I allowed myself to be drawn to management’s narrative and was not critical enough of their excuses for poor performance. I was also heavily influenced by the notion that the valuation appeared cheap on a price-to-free cash flow basis. As I should have better remembered from my investment banking days in the early 2000’s when I was involved with IPOs, the stock market seeks growth and does not attribute high terminal value to stagnating companies, especially when management teams have lost the market’s confidence. While this seems obvious in hindsight, the lesson is to act more decisively in cutting a “bad” position in the future.”

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Last December 2020, we published an article telling that Alliance Data Systems Corporation (NYSE: ADS) was in 36 hedge fund portfolios. Its all time high statistics is 45. ADS delivered a -36.95% return in the past 12 months.

Our calculations show that Alliance Data Systems Corporation (NYSE: ADS) does not belong in our list of the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 216% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 121 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

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Disclosure: None. This article is originally published at Insider Monkey.