Richie Capital Group: “INS Remains One of our Best Ideas”

Richie Capital Group, an investment management firm, published its second quarter 2021 investor letter – a copy of which can be downloaded here.  A quarterly portfolio net return of 2.6% was recorded by the RCG Long Only strategy for the second half of 2021, while the RCG Long Short Fund lost 2.5% for the same period. The fund’s closest benchmarks, the Russell 3000 Index and the Equity Long Short Index gained 8.2% and 2.6% for the quarter respectively. 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 Richie Capital Group, the fund mentioned Intelligent Systems Corporation (NYSE: INS), and discussed its stance on the firm. Intelligent Systems Corporation is a Norcross, Georgia-based software company, that currently has a $277.9 million market capitalization. INS delivered a -21.99% return since the beginning of the year, while its 12-month revenues are down by -4.11%. The stock closed at $31.29 per share on July 19, 2021.

Here is what Richie Capital Group has to say about Intelligent Systems Corporation in its Q2 2021 investor letter:

Intelligent Systems (INS – down 19.2% for the quarter and down 21.7% YTD) – INS was one of the largest detractors for the quarter and, because it has long been one of our largest positions, it has had the biggest negative impact on the portfolio as a whole. The company is engaged in payment processing for complex credit transactions. Over the past year, the company has focused on expanding their business and capabilities internationally with office expansion in India and Dubai. However, Covid has created challenges for employees in India including slowing hiring and training. This situation will improve over time.

As growth with their largest customer, Apple, has slowed, INS has focused their attention on growing their business with American Express and ramping up a new undisclosed, large customer. We expect to see impact from these developments in Q3 and Q4.

INS has developed one of the most flexible cloud software architectures. They continue to invest for future growth internationally. And along with the ramp of the new major customer in the second half 2021, management has pointed to potentially 2 new large customers in 2022. INS remains one of our best ideas.”

Based on our calculations, Intelligent Systems Corporation (NYSE: INS) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. Intelligent Systems Corporation was in 7 hedge fund portfolios at the end of the first quarter of 2021, compared to 8 funds in the fourth quarter of 2020. INS delivered a  -18.24% 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.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage.

Disclosure: None. This article is originally published at Insider Monkey.