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Baron Funds, an asset management firm, published its “Baron Real Estate Fund” third quarter 2021 investor letter – a copy of which can be downloaded here. A modest decline of 1.66% was delivered by the fund’s institutional shares for the third quarter of 2021, marginally underperforming its primary benchmark index, the MSCI USA IMI Extended Real Estate Index (the “MSCI Real Estate Index”), and the MSCI US REIT Index (the “REIT Index”), which increased 0.10% and 0.75%, respectively. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.
Baron Funds, in its Q3 2021 investor letter, mentioned Lennar Corporation (NYSE: LEN) and discussed its stance on the firm. Lennar Corporation is a Miami, Florida-based home construction company with a $31.1 billion market capitalization. LEN delivered a 31.17% return since the beginning of the year, while its 12-month returns are up by 34.45%. The stock closed at $99.99 per share on November 2, 2021.
Here is what Baron Funds has to say about Lennar Corporation in its Q3 2021 investor letter:
"Lennar Corporation: We recently acquired additional shares in Lennar, the 2nd largest homebuilder by volume in the U.S. Led by an exceptionally talented management team, we believe Lennar is a true best-in-class company given its market leadership positions, scale and cost advantages, compelling long-term growth potential, and strong balance sheet and liquidity. We believe there is an attractive opportunity to improve the company’s valuation as the company continues to pivot to a land-light operating model by increasing the percentage of land controlled through options or agreements and simplifying its business by spinning out its ancillary and non-core assets."
Based on our calculations, Lennar Corporation (NYSE: LEN) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. LEN was in 50 hedge fund portfolios at the end of the first half of 2021, compared to 49 funds in the previous quarter. Lennar Corporation (NYSE: LEN) delivered a -6.80% 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.