Should You Consider Investing in First Republic Bank (FRC)?

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Harding Loevner, an investment management firm, published its “World Equity Fund” second-quarter 2021 investor letter – a copy of which can be downloaded here. A return of 2.73% was recorded by the fund for the Q2 of 2021, below the 5.04% return of the MSCI World Index, and the 4.68% return of the MSCI All Country World Index 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 Harding Loevner, the fund mentioned First Republic Bank (NYSE: FRC) and discussed its stance on the firm. First Republic Bank is a San Francisco, California-based investment company with a $34.9 billion market capitalization. FRC delivered a 34.62% return since the beginning of the year, while its 12-month returns are up by 75.14%. The stock closed at $197.80 per share on October 1, 2021.

Here is what Harding Loevner has to say about First Republic Bank in its Q2 2021 investor letter:

“Over the past year, the attractive valuation of high-quality companies in out-of-favor sectors has figured into our increased holdings of Energy and Financials. More recently, while we continue to be overweight the Financial sector, we have shifted the composition away from a group of banks with operations in struggling emerging economies in favor of enlarged holdings of two US banks (one of which is) First Republic Bank. Both cater to lucrative niche markets and prioritize impeccable service as a means to grow through referrals from their affluent and contented clientele.”

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Based on our calculations, First Republic Bank (NYSE: FRC) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. FRC was in 34 hedge fund portfolios at the end of the first half of 2021, compared to 41 funds in the previous quarter. First Republic Bank (NYSE: FRC) delivered a 3.80% 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.