Baron Funds, an asset management firm, published its “Baron Real Estate Fund” second quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly return of 4.65% was delivered by the fund’s institutional shares for the Q2 of 2021, below both its MSCI Real Estate and MSCI US REIT benchmarks that delivered 6.99% and 11.74% returns 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 Baron Funds, the fund mentioned Penn National Gaming, Inc. (NASDAQ: PENN) and discussed its stance on the firm. Penn National Gaming, Inc. is a Wyomissing, Pennsylvania-based casino company with an $11.1 billion market capitalization. PENN delivered a -17.98% return since the beginning of the year, while its 12-month returns are up by 32.73%. The stock closed at $70.84 per share on August 13, 2021.
Here is what Baron Funds has to say about Penn National Gaming, Inc. in its Q2 2021 investor letter:
“Following a 232% gain in 2020, the shares of Penn National Gaming, Inc. declined 29% in the most recent quarter and are down 13% year-to-date. At its recent price of only $73 (down from a peak price of $136 in March), we believe Penn’s shares are now attractively valued. We believe the company’s 41 regional casinos are worth approximately $60 per share. Its remaining Barstool media business and online sports betting and i-gaming businesses are currently valued at only $13 per share or less than 3.5 times our expectation for cash flow for these business in 2025. We hold CEO Jay Snowden in high regard and believe he and his team have several levers to grow cash flow and create strong shareholder value in the next few years.”
Based on our calculations, Penn National Gaming, Inc. (NASDAQ: PENN) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. PENN was in 42 hedge fund portfolios at the end of the first quarter of 2021, compared to 41 funds in the fourth quarter of 2020. Penn National Gaming, Inc. (NASDAQ: PENN) delivered a -12.38% 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.