William Von Mueffling’s Cantillon Capital Management recently submitted its 13F for the reporting period of June 30, revealing that it had a public equity portfolio valued at $5.01 billion in the process, which represented a decrease of 2.05% from the previous quarter. The fund reduced its holdings in 17 stocks, made only three additions to existing holdings, and opened no new positions during the quarter. It currently has an estimated $12.4 billion in assets under management. The fund was founded by Mueffling in 2003 after he had a stint at Lazard Asset Management, where he performed exceptionally, averaging more than 30% in annual returns from 1998 to 2003. Cantillon Capital Management currently sports a diversified portfolio, although it mainly invests in technology and finance stocks. In this article, we focus on the hedge fund’s top picks, which are Fidelity National Information Services (NYSE:FIS), Analog Devices, Inc. (NASDAQ:ADI), and Baidu Inc (ADR) (NASDAQ:BIDU).
Why are we interested in the 13F filings of a select group of hedge funds? We use these filings to determine the top 15 small-cap stocks held by these elite funds based on 16 years of research that showed their top small-cap picks are much more profitable than both their large-cap stocks and the broader market as a whole; yet investors have been stuck (until now) investing in all of a hedge fund’s stocks: the good, the bad, and the ugly. Why pay fees to invest in both the best and worst ideas of a particular hedge fund when you can simply mimic the best ideas of the best fund managers on your own? These top small-cap stocks beat the S&P 500 Total Return Index by an average of nearly one percentage point per month in our backtests, which were conducted over the period of 1999 to 2012. Even better, since the beginning of forward testing at the end of August 2012, the strategy worked just as our research predicted and then some, outperforming the market every year and returning 123% over the last 34 months, which is more than 66 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details).
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At the end of the second quarter of 2015, Cantillon Capital Management held a total of 8.08 million shares of Fidelity National Information Services (NYSE:FIS) valued at $499.25 million, representing 9.97% of its total portfolio value. This is a decline from 11.07% exposure its public portfolio had to the stock at the end of the first quarter. The banking and payment technology company has seen declining insider ownership of late, with that metric having gone down by 13.2%. Currently, insiders own 0.4% of the company’s shares. The last insider trade involved the sale of 127,222 shares by the company’s EVP. Fidelity National Information Services (NYSE:FIS) recently announced a quarterly dividend of $0.26, which will be paid to shareholders of record as of September 16, 2015. Going into the second quarter, the biggest fund shareholder out of the more than 700 that we track was Cantillon, followed by Ken Griffin‘s Citadel Investment Group with 2.14 million shares valued at $145.50, having reduced its shares during the quarter by 17%. Other notable fund shareholders were AQR Capital Management, Polar Capital, and D E Shaw.
Second on the list is Analog Devices, Inc. (NASDAQ:ADI), in which Cantillon Capital Management held 7.52 million shares with a market value of $482.54 million. The fund reduced its stake in the company by 217,700 shares during the second quarter of 2015. The Norwood, Massachusetts-based semiconductor company has posted a share price growth of 72.2% over the past three years. While this appears impressive, it isn’t anywhere close to its competitors, a number of which have seen their shares triple. The company currently has a 13.61% return on equity, which is also below the industry average of 16%. Analog Devices, Inc. (NASDAQ:ADI) pays a dividend with a 2.54% yield, representing 15% growth over the past 3three years. While the company is steady and is excellently managed, it hasn’t been able to attract investors like its competitors. In this stock too, Cantillon Capital Management was the biggest shareholder out of the hedge funds tracked by Insider Monkey as of the end of the first quarter. First Pacific Advisors LLC, managed by Robert Rodriguez and Steven Romick, came in second with 3.80 million shares valued at $239.53 million. Another notable fund holder was Adage Capital Management, holding 1.42 million shares valued at $89.71 million.
Lastly, let’s look at Baidu Inc (ADR) (NASDAQ:BIDU), a Chinese online company in which Cantillon Capital Management held 2.22 million shares of, valued at $442.00 million as of March 31. The company has attracted many investors from outside China and is popular for its solid management. However, the stock is down by about 10% year-to-date, although its revenue has been climbing, a trend it has maintained over the past 25 quarters. The company’s mobile segment has been growing tremendously and was responsible for 50% of its revenue in the second quarter of 2015. Baidu Inc (ADR) (NASDAQ:BIDU) tumbled by about 16% on July 28, hours after releasing its second quarter earnings results and giving disappointing guidance for the third quarter. Rising costs have been cited as the main reason for the weak guidance. The company posted earnings per share of $1.81, beating analysts estimate of $1.80, while it posted revenue of $2.67 billion, up 38.3% on a year-over-year basis. Going into the second quarter, the biggest shareholder out of the more than 700 hedge funds that we track was billionaire Stephen Mandel‘s Lone Pine Capital with 5.28 million shares with a market value of $1.19 billion. Philippe Laffont’s Coatue Management came in at number two with a stake of 3.02 million shares with a market value of $628.92 million. Billionaire Andreas Halvorsen’s Viking Global came in third with 2.43 million shares.
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