Wedgewood Partners, an investment management firm, published its second quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly portfolio return of 11.8% was recorded by the fund for the first half of 2021, outperforming the S&P 500 that delivered an 8.6% return for the same period, but slightly below the 11.9% gain of Russell 1000 Growth Index. 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 Wedgewood Partners, the fund mentioned The Progressive Corporation (NYSE: PGR), and discussed its stance on the firm. The Progressive Corporation is a Mayfield, Ohio-based insurance company, that currently has a $56.2 billion market capitalization. PGR delivered a -2.73% return since the beginning of the year, while its 12-month revenues are up by 9.76%. The stock closed at $96.18 per share on July 16, 2021.
Here is what Wedgewood Partners has to say about The Progressive Corporation in its Q2 2021 investor letter:
“Progressive continues to report double-digit growth in policies in force (PIF), having added nearly 750,000 personal automobile and commercial PIFs in the first quarter of 2021, compared to the Company’s closest competitor, GEICO (a subsidiary of Berkshire Hathaway), which added just 124,000 PIFs. However, Progressive’s loss ratio has been elevated over the past few months due to a large, unseasonal ice storm that affected the southwestern U.S. We expect the financial effects of this to be short-lived and that the Company’s core earnings power should continue compounding in-line with its growth in PIFs. Traditional financial businesses are historically and relatively out of favor, if only evidenced by their slim weightings in major U.S. benchmarks, but there are pockets of exceptional growth businesses, such as Progressive, where we are happy to be contrarians.”
Based on our calculations, The Progressive Corporation (NYSE: PGR) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. The Progressive Corporation was in 45 hedge fund portfolios at the end of the first quarter of 2021, compared to 48 funds in the fourth quarter of 2020. PGR delivered a -2.61% 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.