Artko Capital LP, an investment management firm, published its second-quarter 2021 investor letter – a copy of which can be downloaded here. A return of 0.5% was delivered by the fund for the second quarter of 2021, underperforming the S&P 500 Index, the Russell 2000, and Russell Microcap Index, which delivered an 8.6%, 4.3%, and 4.1% return respectively for the same period. You can take a look at the fund’s top 5 holdings to have an idea about their top bets for 2021.
In the Q2 2021 investor letter of Artko Capital, the fund mentioned Global Indemnity Group, LLC (NASDAQ: GBLI) and discussed its stance on the firm. Global Indemnity Group, LLC is a Bala Cynwyd, Pennsylvania-based indemnity company with a $391.2 million market capitalization. GBLI delivered a -5.39% return since the beginning of the year, while its 12-month returns are up by 26.76%. The stock closed at $27.00 per share on September 23, 2021.
Here is what Artko Capital has to say about Global Indemnity Group, LLC in its Q2 2021 investor letter:
“Global Indemnity Group (GBLI ) – Over the last two quarters we have built up a 6% position at an average price of around $27.00 per share, in what we would consider a special situation investment, in $320mm capitalization specialty insurer. GBLI offers Commercial Specialty, Specialty Property, Farm, Ranch & Stable insurance in the United States and Reinsurance financial products globally. Although the company has always been statistically cheap, trading at an average of 0.7x book value and at close to 0.5x today, it was for good reason, as its average Return On Equity has hovered in low single digits vs the industry average of 8%+. Our interest in this position is mostly event driven. Approximately a year ago, the company underwent a shareholder approved re-domestication transaction which freed up over $250mm in regulatory capital. While management has yet to prove
themselves as shareholder friendly, and there are questionable arms lengths transactions, we believe shareholder pressure, including an involvement of a reputable small cap activist firm, Harbert Discovery Fund, is probabilistically in a shareholder friendly transaction such as a special dividend payout in the 50% to 75% range of current share price. The company has postponed its investor day a number of times in 2021, but we believe the one scheduled for September 2021 will give the shareholders the answers they seek in terms of the company’s allocation of its new found capital. In the meantime, we believe the low valuation and a ~4.0% dividend yield provide us with the margin of safety to make this a large Enhanced Value Portfolio position.”
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Based on our calculations, Global Indemnity Group, LLC (NASDAQ: GBLI) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. GBLI was in 5 hedge fund portfolios at the end of the first half of 2021, compared to 3 funds in the previous quarter. Global Indemnity Group, LLC (NASDAQ: GBLI) delivered a -0.99% 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.
