Ensemble Capital recently published its 2022 Q2 investor letter, a copy of which can be downloaded here. The fund lost nearly a third of its value this year and trails the S&P 500 Index. However, it posted positive annualized returns of 7% and 10% respectively over the last 3 and 5 years. You can take a look at the fund’s top 5 bets to have an idea about their best picks this year.
One of the main reasons for Ensemble’s poor 2022 performance is the disappointing performance of high-growth stocks this year like the medical device company, Masimo Corporation (NASDAQ:MASI). The group of high-growth stocks in Ensemble’s portfolio declined an average of 51% this year and contributed 14 percentage points to the fund’s -33% return this year. They don’t think they are overestimating MASI’s and other growth stocks’ future growth rates. Ensemble Capital believes that “during periods of fear about the future, other investors may suddenly start to ignore the long-term opportunity and focus instead on the very near term”.
Here is what the fund specifically said about Masimo Corporation (NASDAQ:MASI):
“Masimo stock has also traded down to extremely low levels. You can read our thesis on this health sensing technology business here. In their case, there has not been a deceleration in their growth rate nor is one expected. The company has very solid, and in our view very durable, growth related to selling their existing products to hospitals. But the company also has a very large opportunity to expand the range of products they sell within the hospital as well as selling health sensing technology products that are used in the home.
In February, the company shocked investors (including us) by announcing that as part of their strategy to bring these additional products to market, they would be buying a home audio technology company called Sound United. In our view, the company’s communication to investors about the strategy related to the acquisition has fallen far short of what it should be. The company insists that explaining the strategy in more detail at this time would tip off competitors as they race to market, and they plan to provide an in-depth strategy update at an investor day in September.
Our own research since the deal was announced, as well as our conversations with management and other major shareholders of the company, has helped provide us with confidence that the company’s strategy, while unexpected, is likely to succeed. That being said, the company’s full explanation of their strategy won’t come until September and based on what we learn at that time, we remain completely open to changing our minds.
The reaction to Masimo’s acquisition helps illustrate the short-term thinking that currently permeates financial markets. While waiting two more months to hear from the company might be an unacceptably long time for investors who are not willing to think longer than a few days or weeks into the future, our investment in Masimo is based on our view of the tremendous positive impact the company can have over the next decade as they reduce the cost of health care and improve patient outcomes, while rewarding long-term oriented shareholders handsomely along the way. But it would not be truthful to say that we are immune from short-term pressures. Holding stocks that other investors have dumped is challenging to say the least.”
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Our calculations show that Masimo Corporation (NASDAQ:MASI) fell short and didn’t make it on our list of the 30 Most Popular Stocks Among Hedge Funds. Masimo Corporation (NASDAQ:MASI) was in 38 hedge fund portfolios at the end of the first quarter of 2022, compared to 39 in the previous quarter. Masimo Corporation (NASDAQ:MASI) shares lost 48% of their value over the last 52 weeks.
Recently, we published an article and shared How Did Hedge Funds’ Masimo Corporation (MASI) Bets fared. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters 2022 Q2 page.
Disclosure: None. This article is originally published at Insider Monkey.
