Cooper Investors, an investment management firm, published its “Cooper Investors Global Equities Fund (Hedged)” third quarter 2021 investor letter – a copy of which can be downloaded here. For the rolling three months to one year, the Fund returned 5.7% and 28.24% respectively, while its benchmark, by comparison, returned -0.42% and 26.57% over the same period. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.
Cooper Investors, in its Q3 2021 investor letter, mentioned Aon plc (NYSE: AON) and discussed its stance on the firm. Aon plc is a London, United Kingdom-based insurance company with a $69.8 billion market capitalization. AON delivered a 46.50% return since the beginning of the year, while its 12-month returns are up by 49.93%. The stock closed at $309.52 per share on October 19, 2021.
Here is what Cooper Investors has to say about Aon plc in its Q3 2021 investor letter:
“In mid-July Aon announced the cancellation of its $30bn acquisition of Willis Towers Watson. The deal to create the world’s largest insurance broking group had been slowly working its way through the various global antitrust authorities since the March 2020 announcement, with several remedies in the shape of asset sales already agreed.
However, the timing of the deal through the US antitrust process this year coincided with a newly Bidenappointed Attorney General and a reenergised and more stringent US Department of Justice. In June the DoJ filed a lawsuit arguing that the merger would lead to a monopoly scenario.
While the rational for the deal was attractive – namely significant synergies from plugging Willis Towers Watson into Aon’s industry leading ‘Aon United’ client service model and highly efficient back-end, our understanding is that the remedies requested by the DoJ required splitting up internal teams and was untenable with the way Aon is set up to operate today.
Although paying a large break fee is a bitter pill to swallow, after discussing the situation with management we are in agreement that terminating the deal was the best course of action for shareholders given the evolved antitrust environment. There has been a sense of relief around the business and share price since the announced cancellation, with no more merger delays and execution risk off the table the shares have recovered 20% in 3 months.
The failed merger is a misstep in an otherwise unblemished operational track record for CEO Greg Case and CFO Christa Davies, who have streamlined Aon’s operating model and successfully pivoted towards higher growth, higher margin and higher return on capital businesses over our 8 years of ownership. Both have recommitted for a further 5 years and we continue to see Aon as an innovative operator with opportunities to keep running the playbook on top of a business model that is highly resilient with ~90% recurring revenues. On around 20 times next year’s Free Cash Flow there remains attractive Value Latency for this management team to aim at.”
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Based on our calculations, Aon plc (NYSE: AON) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. AON was in 68 hedge fund portfolios at the end of the first half of 2021, compared to 72 funds in the previous quarter. Aon plc (NYSE: AON) delivered a 34.54% 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.
