Madison Investments, an investment management firm, released its “Madison Investments U.S. Equity Strategy ” Q4 2023 investor Letter. A copy of the same can be downloaded here. In 2023, the US stock market experienced a positive year. The S&P 500 Index ended 2023 up 26.3%, having recovered all of its 2022 decline and a little bit more. The year’s most notable feature was the glaring concentration of returns in the Magnificent Seven. With an average annual return of 111.7%, these seven megacap technology firms accounted for considerably over half of the S&P 500’s entire gain. In addition, you can check the top 5 holdings of the fund to know its best picks in 2023.
Madison Investments U.S. Equity Strategy featured stocks such as Brown & Brown, Inc. (NYSE:BRO) in its Q4 2023 investor letter. Headquartered in Daytona Beach, Florida, Brown & Brown, Inc. (NYSE:BRO) provides insurance products and services. On February 16, 2024, Brown & Brown, Inc. (NYSE:BRO) stock closed at $82.69 per share. One-month return of Brown & Brown, Inc. (NYSE:BRO) was 9.83%, and its shares gained 43.38% of their value over the last 52 weeks. Brown & Brown, Inc. (NYSE:BRO) has a market capitalization of $23.533 billion.
Madison Investments U.S. Equity Strategy stated the following regarding Brown & Brown, Inc. (NYSE:BRO) in its fourth quarter 2023 investor letter:
“Whether it’s performance by market capitalization, sectors, or any other factor, stock markets are intrinsically cyclical. Some cycles are long-term, taking decades to unfold, and some are short-term, lasting months, weeks, or even days. Many are medium in length, lasting two, three, or several years. Most cycles occur because a trend often creates the seeds of its own reversal. We at Madison Investments are certain that market cycles will occur, but it doesn’t mean we can predict their timing or magnitude. We don’t think we can. This is perhaps a major difference between us and many other investors. Most investors believe it’s their job to time market cycles despite overwhelming evidence that it’s nearly impossible to do so with enough accuracy to make such an effort profitable over long periods. We avoid making calls about market cycles and spend zero minutes thinking about them, not because we don’t think they can be important, but because we think they’re inherently unpredictable in duration.
This mentality of our team is generally true for other kinds of cycles, such as macroeconomic, industry, or company-specific, but is a bit more nuanced for those. We make no explicit prediction about cycles on which we base a buy or sell decision. Still, we are acutely aware of the various cyclical forces at work, and depending on whether we think we have the ability to assess the length or intensity of such, we may incorporate them to various degrees.
Let’s take another example of a recession-resistant investment we’ve held for many years, Brown & Brown, Inc. (NYSE:BRO). We first purchased this company in 2007 in our Mid Cap strategy. As an insurance broker, it gets paid a commission on the premiums that its mostly small business clients pay. Since clients need to maintain insurance coverage even in business downturns, Brown & Brown’s revenues tend to be very steady year by year. Yet, our investment underperformed for the seven years after our initial purchase, and it wasn’t because we paid a high price – the stock traded at a moderate price to earnings (P/E) of 17x at the time. The culprit was profits. After increasing sixfold over the seven years before our purchase, earnings per share were essentially flat from 2007 to 2014, going from $0.68 per share to $0.71 per share. No wonder our investment underperformed the Russell Midcap benchmark over that period. The sources of sluggish profits were manifold, including management turnover, a change in its acquisition strategy, moderate under-investments in dealing with the shift towards more complex insurance needs among its customer base, and a heavy exposure to Florida, a state hit especially hard during the Great Financial Crisis…” (Click here to read the full text)
A woman in a business suit in an insurance office, analyzing a policy.
Brown & Brown, Inc. (NYSE:BRO) is not on our list of 30 Most Popular Stocks Among Hedge Funds. At the end of the fourth quarter, Brown & Brown, Inc. (NYSE:BRO) was held by 32 hedge fund portfolios, up from 23 in the previous quarter, according to our database.
We discussed Brown & Brown, Inc. (NYSE:BRO) in another article and shared Madison Investments’ views on the company. In addition, please check out our hedge fund investor letters Q4 2023 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
