Artisan Partners, a high value-added investment management firm, published its ‘Artisan Mid Cap Fund’ second quarter 2021 investor letter – a copy of which can be downloaded here. A return of 10.45% was recorded by its Investor Class: ARTMX, 10.46% by its Advisor Class: APDMX, and 10.52% by its Institutional Class: APHMX, in the second quarter of 2021, all below the Russell Midcap® Growth Index that delivered an 11.07% return, but outperforming the Russell Midcap® Index that was up by 7.50% for the same period. You can take a look at the fund’s top 5 holdings to have an idea about their top bets for 2021.
In the Q2 2021 investor letter of Artisan Partners, the fund mentioned Advanced Drainage Systems, Inc. (NYSE: WMS) and discussed its stance on the firm. Advanced Drainage Systems, Inc. is a Hilliard, Ohio-based plastics pipe company with an $8.19 billion market capitalization. WMS delivered a 39.00% return since the beginning of the year, while its 12-month returns are up by 109.44%. The stock closed at $115.65 per share on September 2, 2021.
Here is what Artisan Partners has to say about Advanced Drainage Systems, Inc. in its Q2 2021 investor letter:
“Advanced Drainage Systems is a leader (60%-70% share) in plasticpipe drainage systems for non-residential, residential, agriculture and public infrastructure projects. The company’s products are used in the full storm-water drainage system—capturing, transporting, treating and redistributing water into the water table. Further, plastic-pipe systems are easier to install, have a longer useful life and require fewer deliveries to the project sites than traditional concrete pipe systems. Our research suggests a relatively new management team is taking the appropriate steps to enter new markets and expand its product/service offerings by providing higher-performance pipes and a more comprehensive suite of products for its infrastructure, residential and distribution center (Amazon, Walmart, etc.) projects. Furthermore, we believe post-pandemic cyclical tailwinds could magnify growth over the next few years, while several operational initiatives—sourcing lower-cost materials, optimizing machine utilization, automation—should improve margins over time.”
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Based on our calculations, Advanced Drainage Systems, Inc. (NYSE: WMS) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. WMS was in 26 hedge fund portfolios at the end of the first half of 2021, compared to 29 funds in the previous quarter. Advanced Drainage Systems, Inc. (NYSE: WMS) delivered a 6.57% 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.
