ClearBridge Investments, an investment management firm, published its “Dividend Strategy” second quarter 2021 investor letter – a copy of which can be downloaded here. The ClearBridge Dividend Strategy underperformed its S&P 500 Index benchmark during the second quarter. On an absolute basis, the Strategy had gains in 10 of 11 sectors in which it was invested for the quarter. The financials, IT, and industrials sectors mainly contributed to Fund performance, while the communication services, consumer discretionary, and utilities were the main detractors. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.
In the Q2 2021 investor letter of ClearBridge Investments, the fund mentioned Sempra (NYSE: SRE), and discussed its stance on the firm. Sempra is a San Diego, California-based energy infrastructure company, that currently has a $40.01 billion market capitalization. SRE delivered a 3.74% return since the beginning of the year, extending its 12-month revenues to 7.78%. The stock closed at $132.17 per share on July 14, 2021.
Here is what ClearBridge Investments has to say about Sempra in its Q2 2021 investor letter:
“Over the last year we have increased our exposure to utilities and during the quarter we continued to build out our position in Sempra. We added to utilities during the depths of the pandemic as their stocks sold off despite the defensive nature of their businesses. In a world of uncertainty, utilities offered predictable results with an attractive entry point. Our investment thesis in utilities, however, is not merely defensive; we believe utilities are one of the best ways to capitalize on the energy transition as the world decarbonizes and electrifies. As we move to electric vehicles and renewable power, the world will see tremendous investment in electric infrastructure. Utilities will build the grids of the future and this investment should drive attractive earnings growth for decades. We have focused our utilities investments in states with aggressive green policy initiatives that will drive strong growth.”
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Based on our calculations, Sempra (NYSE: SRE) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. Sempra was in 27 hedge fund portfolios at the end of the first quarter of 2021, compared to 33 funds in the fourth quarter of 2020. SRE delivered a -3.97% 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.