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 Covetrus, Inc. (NASDAQ: CVET) and discussed its stance on the firm. Covetrus, Inc. is a Portland, Maine-based animal-health company with a $2.7 billion market capitalization. CVET delivered a -29.37% return since the beginning of the year, while its 12-month returns are down by -24.93%. The stock closed at $20.30 per share on October 20, 2021.
Here is what Madison Funds has to say about Covetrus, Inc. in its Q3 2021 investor letter:
“Healthcare continues to be a challenging sector. Our investments in Covetrus meaningfully pulled back and detracted from our performance. In the case of Covetrus, we reduced our investment size after a disappointing second quarter earnings report. While we like the management and growth strategy of the company, we think the durability of the franchise may be in question due to competitive threats from eCommerce.”
Photo by Karlo Tottoc on Unsplash
Based on our calculations, Covetrus, Inc. (NASDAQ: CVET) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. CVET was in 18 hedge fund portfolios at the end of the first half of 2021, compared to 17 funds in the previous quarter. Covetrus, Inc. (NASDAQ: CVET) delivered a -19.57% 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.
