Heartland Advisors, an investment management firm, published its “Heartland Value Fund” third-quarter 2021 investor letter – a copy of which can be seen here. The inflating bubble in many asset classes early in the quarter drained oxygen away from value stocks and the Fund was off modestly but kept pace with its benchmark. We believe the setback is temporary and your holdings should be in a stronger position for the long haul than many of the market darlings of today. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.
Heartland Advisors, in its Q3 2021 investor letter, mentioned Bed Bath & Beyond Inc. (NASDAQ: BBBY) and discussed its stance on the firm. Bed Bath & Beyond Inc. is a Union, New Jersey-based retail-store company with a $1.4 billion market capitalization. BBBY delivered a -18.92% return since the beginning of the year, while its 12-month returns are down by -43.22%. The stock closed at $14.29 per share on October 21, 2021.
Here is what Heartland Advisors has to say about Bed Bath & Beyond Inc. in its Q3 2021 investor letter:
"After spending most of the past year betting on the resiliency of consumers, investors began to lose faith as enhanced unemployment benefits and government stimulus checks wound down and inflation remained elevated. A closer look at the data as shown in the chart below, however, indicates the downturn in consumer economic health may be overstated. It shows that financial obligations such as rent and loan payments, as a percent of disposable income, have shrunk to the lowest level in 40-plus years.
More money in consumers’ pockets could benefit portfolio holding Bed Bath & Beyond Inc. (BBBY), a national retailer of home goods.
We highlighted Bed Bath in our commentary last quarter and praised its new management team led by CEO Mark Tritton, who came to the company after a successful tenure at Target. Leadership has been closing underperforming stores, selling non-core businesses to firm up the balance sheet, and implementing retail best practices across the company.
The efforts hit a snag in the most recent quarter due to supply chain disruptions, a spike in COVID-19 cases, and persistent inflation pressures. The headwinds took a toll on earnings with the company reporting weaker-than-expected results and subdued guidance in late September.
The recent setback was disappointing; however, we view the initial reaction from investors as overblown. The challenges experienced during the period are likely temporary and we remain confident in Bed Bath’s trajectory going forward. With shares trading at less than 5X EBITDA, BBBY could offer investors meaningful compensation for their patience in the quarters ahead."
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Based on our calculations, Bed Bath & Beyond Inc. (NASDAQ: BBBY) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. BBBY was in 21 hedge fund portfolios at the end of the first half of 2021, compared to 23 funds in the previous quarter. Bed Bath & Beyond Inc. (NASDAQ: BBBY) delivered a -49.86% 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.