Artisan Partners, a high value-added investment management firm, published its ‘Artisan Global Discovery Fund’ second quarter 2021 investor letter – a copy of which can be downloaded here. A return of 10.28% was recorded by its Investor Class: APFDX, 10.27% by its Advisor Class: APDDX, and 10.35% by its Institutional Class: APHDX for the second quarter of 2021, all beating the MSCI All Country World Index that delivered a 7.39% return 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 Morningstar, Inc. (NASDAQ: MORN) and discussed its stance on the firm. Morningstar, Inc. is a Chicago, Illinois-based financial services company with an $11.8 billion market capitalization. MORN delivered an 18.59% return since the beginning of the year, while its 12-month returns are up by 79.50%. The stock closed at $272.44 per share on September 22, 2021.
Here is what Artisan Partners has to say about Morningstar, Inc. in its Q2 2021 investor letter:
“We added to our positions in Morningstar. Morningstar is a leading provider of outsourced investment management and products helping financial advisors (FAs) and global asset managers make investment decisions. The company possesses several franchise characteristics we seek—possession of proprietary assets (ratings, style box), a dominant market position in financial software (40% of FAs, 50% of global asset managers) and a defensible brand name (mid-90s retention rates). We believe the company is in the early stages of transitioning its business to larger and faster growing markets through the acquisitions of Pitchbook (private markets), Sustainalytics (ESG) and DBRS (credit). Collectively, we believe Morningstar can sustain high single-digit organic revenue growth as it leverages new and existing intellectual property to develop and cross sell its products across its expanded network of clients. In addition, we believe free cash flow should accelerate due to the “build once, sell to many” nature of its businesses, allowing operating margins to expand towards the low 30s average of information services peers. We increased our position size to a CropSM holding given our strong conviction in the profit cycle.”
Based on our calculations, Morningstar, Inc. (NASDAQ: MORN) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. MORN was in 24 hedge fund portfolios at the end of the first half of 2021, compared to 25 funds in the previous quarter. Morningstar, Inc. (NASDAQ: MORN) delivered an 11.52% 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.
