Cantillon Capital Management is a New York-based long/short equity hedge fund founded by William Von Mueffling in 2003. Mr. Mueffling holds an MBA from Columbia Business School and prior to founding Cantillon, he had worked at Deutsche Bank and Lazard Asset Management. According to Cantillon Capital Management’s recently submitted 13F with the SEC, the US equity portfolio of the fund at the end of September was worth almost $4.7 billion, down from the $5.0 billion disclosed as of the end of June. Cantillon runs a fairly concentrated portfolio by hedge funds standards with open positions in 24 stocks as of September 30, and quarter-over-quarter turnover of only 5.26%. Technology and finance are the fund’s two most preferred sectors to invest, accounting for 34% and 32% respectively of the equity portfolio value at the end of September. In this article we are going to dissect the fund’s top five equity holdings at the end of the third quarter and try to gauge the reasons why Cantillon is betting on them.
Why are we interested in the 13F filings of a select group of hedge funds? We use these filings to determine the top 15 small-cap stocks held by these elite funds based on 16 years of research that showed their top small-cap picks are much more profitable than both their large-cap stocks and the broader market as a whole; yet investors have been stuck (until now) investing in all of a hedge fund’s stocks: the good, the bad, and the ugly. Why pay fees to invest in both the best and worst ideas of a particular hedge fund when you can simply mimic the best ideas of the best fund managers on your own? These top small-cap stocks beat the S&P 500 Total Return Index by an average of nearly one percentage point per month in our backtests, which were conducted over the period from 1999 to 2012. Even better, since the beginning of forward testing at the end of August 2012, the strategy worked just as our research predicted and then some, outperforming the market every year and returning 102% over the last 37 months, which is more than 53 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details).
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#5 Willis Group Holdings PLC (NYSE:WSH)
Shares Owned by Cantillon Capital Management (as of September 30): 8.32 million shares
Value of Holding (as of September 30): $340.932 Million
Cantillon added an additional 532,000 shares of the London-based insurance company during the third quarter. The stock of Willis Group Holdings PLC (NYSE:WSH) has declined steadily since May this year, but the recovery it made during October has let to the stock trading flat for the year. On November 6, the company affirmed to its shareholders that it supports its merger with Towers Watson & Co. (NASDAQ:TW) as proposed by Institutional Shareholder Services (ISS). For the third quarter of fiscal 2015 the company reported disappointing numbers on October 27. While the Street was expecting it to report EPS of $0.17 on revenue of $870.41 million, it reported EPS of $0.14 on revenue of $846 million. Jeffrey Ubben‘s ValueAct Capital was the largest shareholder of Willis Group Holdings PLC (NYSE:WSH) at the end of June among the hedge funds tracked by us; it owned over 18.4 million shares of the company.
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#4 Ecolab Inc. (NYSE:ECL)
Shares Owned by Cantillon Capital Management (as of September 30): 3.25 million shares
Value of Holding (as of September 30): $357.116 Million
Moving on, shares of Ecolab Inc. (NYSE:ECL) more or less have held on to the gains they made during the first two months of the year and currently trade with year-to-date gains of 10.36%. During the third quarter Cantillon sold a paltry 6,900 shares of the company. On November 5, Ecolab Inc. (NYSE:ECL)’s energy services subsidiary, Nalco Champion, acquired the assets and operations of Ultra Fab Industries Ltd., a Canadian firm that manufactures specialized chemical injection systems for the oil and gas industry. On November 2, Ecolab declared its fiscal 2015 third quarter earnings. Although the EPS of $1.28 that it reported came in-line with analysts’ expectation, it missed revenue estimates of $3.55 billion by delivering $3.45 billion in revenue. Richard Chilton‘s Chilton Investment Company reduced its stake in Ecolab by 79% to 155,569 shares during the second quarter.