Silver Ring Value: “I Exited Mednax (MD) to Redeploy our Capital into More Attractive Investments”

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Silver Ring Value Partners, an investment management firm, published its second quarter 2021 investor letter – a copy of which can be downloaded here. The portfolio ended the quarter at an attractive Price to Base Case Value ratio of 60%, and all of the stocks in the portfolio were below 70% of Base Case value. 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 Silver Ring Value Partners, the fund mentioned MEDNAX, Inc. (NYSE: MD), and discussed its stance on the firm. MEDNAX, Inc. is a Florida, United States-based medical group, that currently has a $2.5 billion market capitalization. MD delivered a 20.46% return since the beginning of the year, extending its 12-month returns to 55.58%. The stock closed at $29.56 per share on July 21, 2021.

Here is what Silver Ring Value Partners has to say about MEDNAX, Inc. (NYSE: MD) in its Q2 2021 investor letter:

“It is never my intent to exit an investment relatively quickly after I make it. I have a long-term time horizon which usually translates into an average holding period of 3 to 5 years. However, my decisions are always governed by a rational comparison between price and value as well as consideration of the opportunity cost.

I purchased Mednax at approximately 65% of my Base Case value. It rose relatively quickly to over 90% of Base Case value. During this period, the quarterly fundamentals were worse than I had expected, for reasons that I believe to be temporary. With no reason to increase my assessment of value based on the available evidence, and with a number of my other investments trading below 65% of my Base Case value, I followed my process and exited Mednax in order to redeploy our capital into more attractive investment opportunities.”

Medical, Healthcare

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Based on our calculations, MEDNAX, Inc. (NYSE: MD) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. MEDNAX, Inc. (NYSE: MD) was in 11 hedge fund portfolios at the end of the first quarter of 2021, compared to 18 funds in the fourth quarter of 2020. MD delivered an 11.30% 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.