Here’s Why Madison Funds Stays Hopeful in PACCAR Inc. (PCAR)

·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 PACCAR Inc. (NASDAQ: PCAR) and discussed its stance on the firm. PACCAR Inc. is a Bellevue, Washington-based manufacturing company with a $30.1 billion market capitalization. PCAR delivered a 0.63% return since the beginning of the year, while its 12-month returns are down by -4.50%. The stock closed at $86.50 per share on October 19, 2021.

Here is what Madison Funds has to say about PACCAR 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. Like the auto manufacturers, PACCAR and its commercial truck competitors do not yet have the semiconductors they need to finish the assembly of many of the trucks they could otherwise sell currently. We assume recovery in 2022, but the timelines continue to be pushed out. When constraints are alleviated, we expect very good results to ensue, as described in last quarter’s letter."

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Based on our calculations, PACCAR Inc. (NASDAQ: PCAR) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. PCAR was in 28 hedge fund portfolios at the end of the first half of 2021. PACCAR Inc. (NASDAQ: PCAR) delivered a -1.43% 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.

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