Arch Capital Fully Exited its Position in Sprouts Farmers Market (SFM)

Investment management company Arch Capital recently released its second quarter 2022 investor letter. A copy of the same can be downloaded here. Year to date the fund returned -24.6% net of realized and estimated fees, compared to -20.0% for the S&P 500 Total Return Index. Since its inception, the fund returned -27.2%.  You can check the top 5 holdings of the fund to know its best picks in 2022.

Arch Capital discussed stocks like Sprouts Farmers Market, Inc. (NASDAQ:SFM) in the second quarter letter. Headquartered in Phoenix, Arizona, Sprouts Farmers Market, Inc. (NASDAQ:SFM) is a US-based supermarket chain that provides fresh, natural, and organic products. On August 23, 2022, Sprouts Farmers Market, Inc. (NASDAQ:SFM) stock closed at $30.36 per share. One-month return of Sprouts Farmers Market, Inc. (NASDAQ:SFM) was 11.01% and its shares gained 24.58% of their value over the last 52 weeks. Sprouts Farmers Market, Inc. (NASDAQ:SFM) has a market capitalization of $3.262 billion.

Here is what Arch Capital specifically said about Sprouts Farmers Market, Inc. (NASDAQ:SFM):

“We entered 2022 with Sprouts Farmers Market, Inc. (NASDAQ:SFM) as the fund’s largest position. This was due to our initial position sizing, the stock’s great performance, and the poor performance of the rest of our portfolio holdings. In early March, SFM popped 15% and reached a market cap close to $4 billion. This put a double whammy on our expected forward returns for the stock. First, and most obvious, a higher market cap means we are yielding less in cash flow each year. Our bet on SFM revolved around durable (but low growth) cash flow generation that was yielding more than 10% when we purchased shares. At a market cap significantly higher, forward returns would be lower than our 15% hurdle rate. Second, a big reason we liked SFM was management’s strategy to pour all free cash flow into share repurchases at a depressed earnings multiple. This attractiveness incrementally goes away at higher and higher share prices. Combine this with other opportunities presenting themselves with the broad market sell-off this year, and we decided to fully exit our SFM position.”

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Sprouts Farmers Market, Inc. (NASDAQ:SFM) is not on the list of 30 Most Popular Stocks Among Hedge Funds. As per our database, Sprouts Farmers Market, Inc. (NASDAQ:SFM) was held by 24 hedge fund portfolios at the end of the first quarter, which was 24 in the previous quarter.

We discussed Sprouts Farmers Market, Inc. (NASDAQ:SFM) in another article and shared Wasatch Global Investors’ views on the company. You can check out our hedge fund investor letters Q2 2022 page for more investor letters from hedge funds and other prominent investors.

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