With the turbulence in Europe and questions of US economic growth, markets seem particularly susceptible to headline risk, subjecting investors to massive volatility and major political risk. One of the appeals of activist investing is the possibility of a situation-specific catalyst, which allows results to de-couple from the broader market. Of course, activist investing requires a great deal more effort and resources than passive investing and is beyond the ability of retail investors. But we can still track notable activist hedge funds, piggyback onto their best ideas and allow them to do the heavy lifting for us. And we don't have to pay them any 2+20 fees to boot.
William (Bill) Ackman is the controversial manager of Pershing Square Capital Management, a hedge fund based in New York. He first gained notoriety for his outspoken criticisms against MBIA as early as 2002, which were eventually proven right during the financial crisis of 2008. Pershing profited handsomely on MBIA's crash but not all moves have panned out as well. Ackman opened a fund focused solely on going long Target (TGT) and lost much of that fund's capital. Even the best investors can't win every bet. In Q3, Ackman was overwhelmingly buying and did little selling of note:
- Ackman's biggest Q3 spend was a new position in Lowe's Companies (LOW) to an estimated tune of $411M. Ackman regularly discusses his investments so readers can find Pershing's long case for Lowe's here. Pershing also revealed a new 12% stake in Canadian Pacific Railway (CP) and Ackman has not been as forthcoming on that investment, though he has made some public comments regarding that company's underperformance relative to peers.
- Pershing also added substantially to its largest disclosed equity holding, Fortune Brands (FBHS). His stake is now estimated to be worth $1.1B.
- Readers can view all of Pershing Square's Q3 portfolio moves in spreadsheet format here.
Carl Icahn is probably the most famous of activist investors, having been around back when activists were called corporate raiders. While asset stripping seems less integral to Icahn's approach these days, his moves are still widely followed and his name showing up on shareholder rolls is apt to spike share prices and gird management teams.
- Icahn's Q3 filing is dominated by the huge $1.2B buy into El Paso (EP), which has already entered into a buyout agreement with Kinder Morgan (KMI), making for some fortuitous timing. Icahn also tacked roughly $200M onto a bet on Forest Labs (FRX), bringing his total stake to ~$800M.
- Icahn's only divestiture was Lions Gate Entertainment (LGF), an admission of defeat to his attempted takeover. In fact, considering similar failures at Clorox (CLX) and Dynegy (DYN) and his inability to garner shareholder support for his efforts, investors may want to be wary of following Icahn blindly into a position.
- View all of Icahn's Q3 portfolio moves in spreadsheet format here (Note: Lions Gate bond figures are inaccurate).
Starboard Value flies under the radar of many retail investors but has generated impressive results leading into its spin-off from Ramius. Unlike Ackman at Pershing, Starboard does not discuss its investments outside of its SEC filings and tends to pursue opportunities in smaller, less-known companies so retail investors will have to do some homework to comfortably piggyback its investments.
- Starboard's biggest Q3 spend was a new position in MIPS Technologies (MIPS). The hedge fund wasted little time sending management a letter urging the company to abandon acquisitions in favor of improving operatons, eventually reaching an agreement to add two independent directors to the board. MIPS is trading far below its 52-week high and may warrant closer examination. AOL (AOL) and Progress Software (PRGS) were the next two biggest adds to the Starboard portfolio.
- The firm boosted its stake in Regis (RGS) by a combined $30M, including its convertible securities position. RGS last showed up on my radar in July, when I pointed out its attractive free cash flow and undervaluation. Now that Starboard has successfully planted 3 members onto the Board of Directors, RGS has a possible value catalyst and merits a serious look.
- See Starboard's complete Q3 portfolio filing in spreadsheet format here.
ValueAct is another smaller, less-known activist fund that is well-respected in the industry. The firm does not engage in activism at all of its portfolio holdings so just because a stock shows up in ValueAct's filing does not mean a showdown with management looms. But the firm will get involved if it sees the need.
- While the firm added two new stakes in CBRE Group (CBG) and World Fuel Services (INT), the firm spent only $200M on the combined stakes.
- By contrast, it seemed the firm was much more excited about its existing portfolio, spending roughly $1.3B to boost positions in Rockwell Collins (COL), Adobe Systems (ADBE) and Moody's (MCO) among other names. Its largest position remains Motorola Solutions (MSI), the only stake worth over $1B as of the Q3 filing.
- ValueAct's Q3 portfolio moves is viewable in spreadsheet format here.