Arch Capital Management, an investment management firm, published its second-quarter 2021 investor letter – a copy of which can be downloaded here. As with most portfolios with no short exposure, the Arch Capital Fund has dipped into the red in 2022. The fund has a mix of both types of companies in our portfolio, given our agnosticism towards so-called “growth” or “value” stocks. Go over the fund’s top 5 positions to have a glimpse of its finest picks for 2022.
In its Q2 2022 investor letter, Arch Capital mentioned Sprouts Farmers Market, Inc. (NASDAQ:SFM) and explained its insights for the company. Founded in 2002, Sprouts Farmers Market, Inc. (NASDAQ:SFM) is a Phoenix, Arizona-based supermarket company with a $3.2 billion market capitalization. Sprouts Farmers Market, Inc. (NASDAQ:SFM) delivered a 2.59% return since the beginning of the year, while its 12-month returns are up by 24.95%. The stock closed at $30.45 per share on August 24, 2022.
Here is what Arch Capital has to say about Sprouts Farmers Market, Inc. (NASDAQ:SFM) in its Q2 2022 investor letter:
“We entered 2022 with Sprouts Farmers Market (NASDAQ:SFM) as the fund’s largest position. This was due to our initial position sizing, the stock’s great performance, and the poor performance of the rest of our portfolio holdings. In early March, SFM popped 15% and reached a market cap close to $4 billion. This put a double whammy on our expected forward returns for the stock. First, and most obvious, a higher market cap means we are yielding less in cash flow each year. Our bet on SFM revolved around durable (but low growth) cash flow generation that was yielding more than 10% when we purchased shares. At a market cap significantly higher, forward returns would be lower than our 15% hurdle rate. Second, a big reason we liked SFM was management’s strategy to pour all free cash flow into share repurchases at a depressed earnings multiple. This attractiveness incrementally goes away at higher and higher share prices. Combine this with other opportunities presenting themselves with the broad market sell-off this year, and we decided to fully exit our SFM position.”
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Our calculations show that Sprouts Farmers Market, Inc. (NASDAQ:SFM) fell short and didn’t make it on our list of the 30 Most Popular Stocks Among Hedge Funds. Sprouts Farmers Market, Inc. (NASDAQ:SFM) was in 24 hedge fund portfolios at the end of the second quarter of 2022, compared to 24 funds in the previous quarter. Sprouts Farmers Market, Inc. (NASDAQ:SFM) delivered a 21.03% return in the past 3 months.
In June 2022, we also shared another hedge fund’s views on Sprouts Farmers Market, Inc. (NASDAQ:SFM) in another article. 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.
