Ensemble Capital, an investment management firm, published its fourth-quarter 2021 investor letter – a copy of which can be downloaded here. In the letter, the fund has focused on economic and COVID-related commentary. The fund also covered the notable detractors and contributors to its fourth-quarter investment performance and offered a discussion of an aspect of its investment strategy. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.
Ensemble Capital Management, in its Q4 2021 investor letter, mentioned NVR, Inc. (NYSE: NVR) and discussed its stance on the firm. NVR, Inc. is a Reston, Virginia-based home construction company with an $18.4 billion market capitalization. NVR delivered a -10.52% return since the beginning of the year, while its 12-month returns are up by 16.46%. The stock closed at $5,154.98 per share on January 21, 2022.
Here is what Ensemble Capital Management has to say about NVR, Inc. in its Q4 2021 investor letter:
“While the United States needs to build about 1.3 million new housing units a year just to keep up with demographic demand and replace homes that are torn down, we have built far fewer than that ever since the housing bust of over a decade ago. Now, with demand for homes surging, yet builders constrained due to supply chain and labor issues, companies like NVR are struggling to build new homes as fast as buyers are demanding them. While NVR’s stock was strong all year, news flow in the home building industry during the fourth quarter pointed to continued strong gross margins as record high selling prices boosted results. NVR’s stock rallied 23% in the quarter to close out the year.
While Ensemble’s investment strategy is focused on owning companies that are already deeply competitively advantaged, we know that what really matters is that our companies remain competitively advantaged in the future. Competitive moats erode over time unless they are diligently and proactively maintained. So, we focus on identifying companies that have strong competitive positioning and which we believe will maintain those advantages over time.
The fact is that investors don’t get paid for observing how the world stands today. They get paid for correctly understanding how the world will evolve over time. If a company starts off with ultra-high competitive advantages, but has them diminished to just strong competitive advantages is likely to see its stock underperform as investors assign less value to the company. On the other hand, a company that starts off with moderate competitive advantages, but works to improve their positioning so they display strong competitive advantages, is likely to see its stock outperform as investor recalibrate the valuation, they assign the company to reflect the stronger positioning.”
Our calculations show that NVR, Inc. (NYSE: NVR) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. NVR was in 32 hedge fund portfolios at the end of the third quarter of 2021, compared to 28 funds in the previous quarter. NVR, Inc. (NYSE: NVR) delivered a 5.73% return in the past 3 months.
In September 2021, we also shared another hedge fund’s views on NVR in another article. You can find other letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.
Disclosure: None. This article is originally published at Insider Monkey.
