Oakmark Funds, an investment management firm, published its “Oakmark Select Fund” second quarter 2021 investor letter – a copy of which can be seen here. A return of 7.96% was reported by the fund in the Q2 of 2021, just behind the S&P 500 Index’s 8.6% return for the same period. You can take a look at the fund’s top 5 holdings to have an idea about their top bets for 2021.
In the Q2 2021 investor letter of Oakmark Funds, the fund mentioned Allison Transmission Holdings, Inc. (NYSE: ALSN), and discussed its stance on the firm. Allison Transmission Holdings, Inc. is an Indianapolis, Indiana-based vehicle propulsion solutions manufacturer with a $3.9 billion market capitalization. ALSN delivered a -12.43% return since the beginning of the year, while its 12-month returns are up by 4.28%. The stock closed at $37.48 per share on August 26, 2021.
Here is what Oakmark Funds has to say about Allison Transmission Holdings, Inc. in its Q2 2021 investor letter:
“Allison Transmission is a niche industrial company with roughly 80% market share in truck transmissions. Its products provide the company’s customers with critical advantages, including fuel economy, reduced emissions, reliability and total-cost-of ownership. The importance of Allison Transmission’s products and its dominant market position have historically given it strong pricing power. Yet, in the year leading up to our purchase, the company’s shares underperformed peers by more than 40 percentage points. Although we believe the company’s fundamentals are still as strong, if not better, than its peers, investors have worried about how commercial vehicle electrification will affect Allison Transmission’s long-term business. We believe that the company’s investments in next-generation products will enable it to maintain its position as an industry leader, even as technologies change. Furthermore, we believe that our investment carries limited downside risk because Allison Transmission’s shares sell at 10x free cash flow, which ascribes almost no value to the future. In addition, the company’s management team diligently returns capital to shareholders.”
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Based on our calculations, Allison Transmission Holdings, Inc. (NYSE: ALSN) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. ALSN was in 23 hedge fund portfolios at the end of the first half of 2021, compared to 30 funds in the previous quarter. Allison Transmission Holdings, Inc. (NYSE: ALSN) delivered a -10.73% 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.