Is BowX Acquisition Corp. (BOWX) A Smart Long-Term Buy?

East 72, an investment management firm, published its second quarter 2021 investor letter – a copy of which can be downloaded here.  A quarterly portfolio gross return of 6.2% was recorded by the fund for the 2nd quarter of 2021 and a 33.6% gross return over the fiscal year. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

East 72, in its Q2 2021 investor letter, mentioned BowX Acquisition Corp. (NASDAQ: BOWX), and shared their insights on the company. BowX Acquisition Corp. is a Menlo Park, California-based blank check company that currently has a $700.9 million market capitalization. Since the beginning of the year, BOWX delivered a 12.57% gain, while its 1-month returns are down by -4.55%. As of July 06, 2021, the stock closed at $11.50 per share.

Here is what East 72 has to say about BowX Acquisition Corp. in its Q2 2021 investor letter:

“The main changes over the quarter (includes) the acquisition of a smaller position in BOWX Acquisition Corp (BOWX), the SPAC which is acquiring WeWork. At prevailing prices of BOWX, the enterprise value of WeWork is ~US$10.2billion – an 80% discount to the mooted (and aborted) IPO price in 2019. We view WeWork as having real traction as a business in the post COVID world, which has now arrived in its major markets.”

Our calculations show that BowX Acquisition Corp. (NASDAQ: BOWX) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the first quarter of 2021, BowX Acquisition Corp. was in 28 hedge fund portfolios, compared to 31 funds in the fourth quarter of 2020. BOWX delivered a -7.53% 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.