Madison Funds, an investment management firm, published its “Madison Small Cap Fund” second-quarter 2021 investor letter – a copy of which can be downloaded here. The fund’s Class Y shares recorded a quarterly portfolio return of 6.27% for the second quarter of 2021, compared to its benchmark, the Russell 2000 Index that was up by 4.29% for the same period. You can view the fund’s top 5 holdings to have an idea about their top bets for 2021.
In the Q2 2021 investor letter of Madison Funds, the fund mentioned Ferro Corporation (NYSE: FOE) and discussed its stance on the firm. The Scotts Miracle-Gro Company is a Mayfield Heights, Ohio-based technology-based performance materials producer with a $1.6 billion market capitalization. FOE delivered a 36.84% return since the beginning of the year, extending its 12-month returns to 55.31%. The stock closed at $20.02 per share on August 19, 2021.
Here is what Madison Funds has to say about Ferro Corporation in its Q2 2021 investor letter:
“Another core position, Ferro Corp (FOE) announced its acquisition by private equity in the second quarter. Ferro was a relatively new addition to the portfolio in 2020, but a company that we have invested in multiple times over our strategy’s history. The company had recently divested its least attractive division, fixed its balance sheet, and was focused on growing its core inorganic materials and pigments businesses. We had posited that there was a myriad of small M&A opportunities for the company now that the balance sheet was de-levered. While we were happy to book a solid gain for our investors, we were disappointed that the company chose to continue this strategy in private, denying us the opportunity to participate.”
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Based on our calculations, Ferro Corporation (NYSE: FOE) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. FOE was in 23 hedge fund portfolios at the end of the first half of 2021, compared to 12 funds in the previous quarter. Ferro Corporation (NYSE: FOE) delivered a -7.01% 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.
