Madison Funds, an investment management firm, published its “Madison Mid Cap Fund” second-quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly portfolio return of 6.58% was recorded by the fund’s Class Y shares for the second quarter of 2021, compared to the Russell Midcap® Index’s gains of 7.50% 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 Cannae Holdings, Inc. (NYSE: CNNE) and discussed its stance on the firm. Cannae Holdings, Inc. is a Las Vegas, Nevada-based holding company with a $2.6 billion market capitalization. CNNE delivered a -31.90% return since the beginning of the year, extending its 12-month returns to -19.75%. The stock closed at $30.15 per share on August 19, 2021.
Here is what Madison Funds has to say about Cannae Holdings, Inc. in its Q2 2021 investor letter:
“Cannae Holdings is an investment holding company chaired by Bill Foley, an investor-executive with one of the most impressive long-term entrepreneurial track records in corporate America. Over the past three and a half decades, he has been responsible for buying and growing numerous software, data analytics, and fintech businesses, including four that are publicly traded today, with market caps of $9 billion, $12 billion, $13 billion, and $90 billion. Cannae itself became independently public several years ago, and has amassed a strong record of market-beating results.
We purchased Cannae stock at an approximately 30% discount to its net asset value (“NAV”). As the large majority of Cannae’s value is in publicly-traded
companies, its NAV can be reliably estimated, which makes the discount somewhat puzzling. Two investments account for a substantial portion of the value: minority stakes in Dun & Bradstreet and Ceridian HCM Holding, both of which were acquired by Cannae in leveraged buyout transactions and have returned multiples of the initial equity invested. Ceridian has matured as an investment position, and Cannae has been selling down its stake for the past year and we expect that to continue. Dun & Bradstreet is still in the middle innings of the investment timeline, and we expect Cannae to benefit greatly from further growth in value. We also own a separate position in Dun & Bradstreet in our portfolio. Cannae also has investments in a myriad of venture-stage companies and companies beginning to truly monetize their scale. Some of them look very promising, and one or two winners would add tremendously to growth in NAV.”
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Based on our calculations, Cannae Holdings, Inc. (NYSE: CNNE) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. CNNE was in 34 hedge fund portfolios at the end of the first half of 2021, compared to 36 funds in the previous quarter. Cannae Holdings, Inc. (NYSE: CNNE) delivered a -18.31% 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.
