Bernzott Capital Advisors, an investment management firm, published its “US Small Cap Value Fund” second-quarter 2021 investor letter – a copy of which can be downloaded here. The fund recorded a quarterly portfolio return of +1.5% for the second quarter of 2021, compared to its benchmarks, the R200V Index that was up by 4.29%, and the R2500V Index which gained 5.0% for the same period. 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 Bernzott Capital, the fund mentioned ADTRAN, Inc. (NASDAQ: ADTN) and discussed its stance on the firm. ADTRAN, Inc. is a Huntsville, Alabama-based telecommunications networking equipment and internetworking products provider with a $1.1 billion market capitalization. ADTN delivered a 54.37% return since the beginning of the year, extending its 12-month returns to 97.06%. The stock closed at $22.80 per share on August 20, 2021.
Here is what Bernzott Capital has to say about ADTRAN, Inc. in its Q2 2021 investor letter:
“Adtran (ADTN): A leading provider of broadband equipment solutions for high-speed digital communications. The company should benefit from the increasing global demand for broadband connectivity, which has accelerated as a result of the pandemic. There are significant amounts of funding both domestic and abroad supporting a multi-year roll-out of broadband infrastructure which should benefit ADTN in the coming years. Additionally, the potential for a US infrastructure bill passing could be additive to an already robust spending backdrop. Gross margins should benefit as revenue mix improves as a result of their increasing exposure to higher margin software sales. ADTN also has significant operating leverage to an improving environment based on the fixed cost nature of their expenses, which should translate into accelerating earnings growth and robust free cash flow generation.”
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Based on our calculations, ADTRAN, Inc. (NASDAQ: ADTN) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. ADTN was in 15 hedge fund portfolios at the end of the first half of 2021, compared to 10 funds in the previous quarter. ADTRAN, Inc. (NASDAQ: ADTN) delivered a 16.86% 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.
