Cooper Investors, an investment management firm, published its “Cooper Investors Global Equities Fund (Hedged)” third quarter 2021 investor letter – a copy of which can be downloaded here. For the rolling three months to one year, the Fund returned 5.7% and 28.24% respectively, while its benchmark, by comparison, returned -0.42% and 26.57% over 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.
Cooper Investors, in its Q3 2021 investor letter, mentioned Ferguson plc (NYSE: FERG) and discussed its stance on the firm. Ferguson plc is a Wokingham, United Kingdom-based plumbing and heating products distributor with a $32.4 billion market capitalization. FERG delivered a 23.62% return since the beginning of the year, while its 12-month returns are up by 38.26%. The stock closed at $145.41 per share on October 18, 2021.
Here is what Cooper Investors has to say about Ferguson plc in its Q3 2021 investor letter:
“We cannot predict the future, but given our preference for companies with strong industry positioning and positive industry trends, we believe the Portfolio is relatively well positioned in the event the current bout of inflation turns out to be more permanent than transitory in nature.
While there are several metrics to assess how a company manages rising costs (price vs volume mix, personnel expenses) it can be challenging to compare stocks across industries given differing disclosure levels. A reasonable rule of thumb that summarises pricing power and cost structure at the portfolio level is Gross Margin. Currently the average Gross Margin of the portfolio is around ~45%, significantly higher than that of the benchmark which we estimate at ~35%.
We have also been encouraged by the pragmatic approach of management teams with whom we have addressed this issue. Ferguson (large US plumbing and HVAC distribution business) for example is increasing investment in automated solutions in its distribution facilities. Its new automated facility in Denver features a state-of-the-art robotic ‘hive’ which is more efficient with less human interaction, and will further extend the group’s inventory availability advantage over peers.”
Based on our calculations, Ferguson plc (NYSE: FERG) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. FERG was in 11 hedge fund portfolios at the end of the first half of 2021, compared to 5 funds in the previous quarter. Ferguson plc (NYSE: FERG) delivered a 5.25% 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.
