Madison Funds, an investment management firm, published its “Madison Small Cap Fund” third quarter 2021 investor letter – a copy of which can be downloaded here. The Madison Small Cap Fund Class Y declined 4.70%, slightly underperforming the Russell 2000 by 34 basis points (bps) for the third quarter of 2021, while the Russell 2000 index was down 4.36% for 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.
Madison Funds, in its Q3 2021 investor letter, mentioned Power Integrations, Inc. (NASDAQ: POWI) and discussed its stance on the firm. Power Integrations, Inc. is a San Jose, California-based semiconductor manufacturing company with a $6 billion market capitalization. POWI delivered a 22.89% return since the beginning of the year, while its 12-month returns are up by 65.13%. The stock closed at $99.49 per share on October 20, 2021.
Here is what Madison Funds has to say about Power Integrations, Inc. in its Q3 2021 investor letter:
“Finally our technology stocks continue to drive positive, excess returns. One of our newest positions drove the lion share of these returns: analog power semiconductor maker, Power Integrations (POWI). This is a company we’ve owned successfully in the past, and we would like to take a moment to discuss this superb franchise and our investment thesis. POWI has one the strongest intellectual property (IP) portfolios within the power analog semiconductor subsector. They’ve successfully defended their IP against several larger companies and boast high operating margins (25%), returns on invested capital and a cash rich, debt free balance sheet. POWI management is highly regarded with a successful track record of execution and capital deployment. One of the most important themes in technology is power efficiency. Devices ranging from handset chargers to laptops to electric vehicles
require greater and faster power management, and POWI’s solutions offer one of the most compelling in terms of size and efficiency. Their integrated solutions take up less space and provide faster and more efficient power management attributes. POWI reported solid results demonstrating share gains and validating our thesis. We believe this is a very strategic franchise and has years of growth opportunity ahead.”
Photo by Yogesh Phuyal on Unsplash
Based on our calculations, Power Integrations, Inc. (NASDAQ: POWI) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. POWI was in 21 hedge fund portfolios at the end of the first half of 2021, compared to 18 funds in the previous quarter. Power Integrations, Inc. (NASDAQ: POWI) delivered a 22.44% 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.
