Madison Funds: “We are Encouraged by the Pricing Escalators that PPG is Enacting”

·3 min read

Madison Funds, an investment management firm, published its “Madison Investors Fund” third-quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly portfolio return of 0.07% was recorded by the fund’s Class Y shares for the third quarter of 2021, with an 11.86% gain on a year-to-date basis, compared to the S&P 500 Index's gains of 0.58%, for the third quarter and 15.92% year-to-date (YTD). 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 PPG Industries, Inc. (NYSE: PPG) and discussed its stance on the firm. PPG Industries, Inc. is a Pittsburgh, Pennsylvania-based coating products supplier with a $37.8 billion market capitalization. PPG delivered a 10.66% return since the beginning of the year, while its 12-month returns are up by 19.08%. The stock closed at $158.94 per share on October 19, 2021.

Here is what Madison Funds has to say about PPG Industries, Inc. in its Q3 2021 investor letter:

"Regarding business activity, we have had companies report disruptions to current economic results from the aforementioned logistical challenges. The coatings industry and PPG have seen raw material shortages and escalating cost inflation from Gulf Coast petrochemical suppliers, while also experiencing lower demand from auto production customers due to semiconductor shortages. We are encouraged by the pricing escalators that PPG is enacting, which bodes well for recouping this year’s cost increases as the supply chain normalizes."

automotive industries
automotive industries

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Based on our calculations, PPG Industries, Inc. (NYSE: PPG) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. PPG was in 26 hedge fund portfolios at the end of the first half of 2021, compared to 25 funds in the previous quarter. PPG Industries, Inc. (NYSE: PPG) delivered a -0.31% 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.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest-growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage.

Disclosure: None. This article is originally published at Insider Monkey.

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