LRT Capital Management, an investment management firm, published its first-quarter 2022 investor letter – a copy of which can be downloaded here. A return of -7.37% was recorded by the LRT Economic Moat strategy for the first quarter of 2022, resulting in a 12-month return of +16.72%. In the LRT Economic Moat strategy, as of April 1st, 2022, the fund’s net exposure was approximately 99% and its estimated net beta-adjusted exposure was 62.2%. Try to spend some time taking a look at the fund’s top 5 holdings to be informed about their best picks for 2022.
In its Q1 2022 investor letter, LRT Capital Management mentioned The Progressive Corporation (NYSE:PGR) and explained its insights for the company. Founded in 1937, The Progressive Corporation (NYSE:PGR) is a Mayfield, Ohio-based insurance company with a $62.7 billion market capitalization. The Progressive Corporation (NYSE:PGR) delivered a 4.59% return since the beginning of the year, while its 12-month returns are up by 4.68%. The stock closed at $107.36 per share on April 29, 2022.
Here is what LRT Capital Management has to say about The Progressive Corporation (NYSE:PGR) in its Q1 2022 investor letter:
“Progressive is a leading U.S. auto insurer that has pioneered telemetrics as a source of differentiation in its underwriting and it operates through a direct (non-agency) sales model. We believe that the company’s sales model, which is still the minority model in the industry confers on the company a durable process-based cost advantage that has allowed the company to deliver industry leading combined ratios (a standard measure of profitability in the insurance industry).
The company has plenty of room to grow and take market share from players such as State Farm, Farmers and Nationwide. The cost advantages conferred by the direct sales model are unstoppable, and the scale advantages the company has in advertising and other customer acquisition costs furthers its strong competitive position. We believe the industry structure is going to evolve towards a duopoly with Progressive and GEICO as the two main players.
While we do not believe telemetrics itself confers any competitive advantage as it is a technology that has been copied by other players, Progressive is a very innovative company, and it has evolved from being an insurer for the highest risk drivers to one that now targets the general population. GEICO on the other hand began its life as an insurer for the best drivers and has now evolved in the direction of insuring everyone. On the surface the companies are similar, but their different pasts continue to shape their corporate cultures and are evident in subtle ways in their decision-making processes arounds expense management and claims processing.
The company has a very conservative investment portfolio with over $44 billion in fixed income securities. 75% of their portfolio is held in securities with a duration of under five years, which means that an increase in interest rates will benefit the company as the portfolio will relatively rapidly reprice into higher yielding securities.”
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Our calculations show that The Progressive Corporation (NYSE:PGR) fell short and didn’t make it on our list of the 30 Most Popular Stocks Among Hedge Funds. The Progressive Corporation (NYSE:PGR) was in 52 hedge fund portfolios at the end of the fourth quarter of 2021, compared to 47 funds in the previous quarter. The Progressive Corporation (NYSE:PGR) delivered a -1.20% return in the past 3 months.
In April 2022, we also shared another hedge fund’s views on The Progressive Corporation (NYSE:PGR) in another article. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters 2022 Q1 page.
Disclosure: None. This article is originally published at Insider Monkey.
