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Oakmark Funds, an investment management firm, published its Bill Nygren third-quarter 2021 market commentary – a copy of which can be seen here. In the letter, the fund talked about governance with a related topic about shareholders vs. stakeholders, and also discussed some great companies to invest in. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.
Oakmark Funds, in its Bill Nygren third-quarter 2021 market commentary, mentioned Bank of America Corporation (NYSE: BAC) and discussed its stance on the firm. Bank of America Corporation is a Charlotte, North Carolina-based financial services company with a $385.8 billion market capitalization. BAC delivered a 54.40% return since the beginning of the year, while its 12-month returns are up by 88.18%. The stock closed at $47.09 per share on October 20, 2021.
Here is what Oakmark Funds has to say about Bank of America Corporation in its Q3 2021 investor letter:
"Earlier this year, one of our holdings, Bank of America, announced that it was raising its minimum hourly wage from $15 to $20 and would increase it to $25 by 2025. The company received great press for placing the well-being of its employees above profits. But was it really either/or? Bank of America’s chief human resources officer spoke to the bigger picture: “A core tenet of responsible growth is our commitment to being a great place to work…that includes providing strong pay and competitive benefits to help them and their families, so that we continue to attract and retain the best talent.” Bank of America understood that engaged, high-caliber employees are more productive, less prone to turnover and, therefore, less expensive in the long run. Increasing the pay for employees wasn’t elevating employees above shareholders; it was the right thing to do for employees and for shareholders.
If an increase to $20 was good, why stop there? Why not $50 per hour? Because the benefits the business receives at $50 don’t justify the expense. The bank would no longer be able to price its products competitively and would lose business. The employees would “win” in the short term, but eventually the lost business would lead to job cuts, meaning both employees and shareholders would lose. The negative effects of stakeholder overreach are no different than when CEOs overreach to inflate short-term profits. Both hurt shareholders and stakeholders."
Based on our calculations, Bank of America Corporation (NYSE: BAC) ranks 28th in our list of the 30 Most Popular Stocks Among Hedge Funds. BAC was in 87 hedge fund portfolios at the end of the first half of 2021, compared to 97 funds in the previous quarter. Bank of America Corporation (NYSE: BAC) delivered a 23.33% 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.