Analyzing Activist Investor Performance in 2016
Activist Investors command the attention of boards and investors alike. In this article, we'll look at their performance through 2016.
This update covers changes to the Novus Activist Portfolio in 2016. Using public data, we dive into their portfolios to discover the drivers of performance.
Everything mentioned in this post is sourced exclusively from public data, including manager profiles, simulated performance and all other analysis and commentary. The data used here omits the short side, non-equity securities, many non-US securities, and all non-public information such as actual fund performance.
Activist Investor Introduction
Activist hedge funds managers continue to command the attention of boards and investors alike. Our commingled, value-weighted portfolio that tracks the holdings of a group of prominent activist investor hedge funds has historically grown assets and outperformed the markets. The portfolio contains both passive and active investments for the managers. The group of roughly 60 Novus-identified managers that have been involved in activist investor campaigns over the last ten years together represent $147.7B in market value (as of 12/31) filed with the SEC, about 15% lower than the market value one year ago.
Activist Investor Performance
The Novus Activist Portfolio has returned 10.7% annualized since March 2004, compared to 7.6% annualized for the S&P 500.
Since we last wrote about activist performance in June of 2015, activists have underperformed the S&P 500 by almost 8%.
The bulk of underperformance was contained in the second half of 2015, followed by a rebound.
Icahn, Elliot, TCI, and Trian were the leaders of the pack in 2016.
Security selection detracted 400 bps in 2016, driven by Valeant, CVR Energy, Allergan, and Sears. A few bright spots can be found in Charter, Navistar, Morgan Stanley, and Sysco, among others.
Activist Investor Portfolio Composition
As of December 2016, Icahn makes up the largest share of the portfolio at 15%, followed by Elliott, TCI, Third Point, Trian, and ValueAct.
A few shifts in composition have transpired over the past several years. A number of the top 10—TCI, Elliott, Third Point, Trian—have grown considerably in the activist portfolio, while others have either maintained—Eminence, Icahn—or lost some share of the total activist investor base –JANA, Pershing, and Fairholme.
Turning to portfolio changes between Q3 and Q4, Pershing’s increased stake in Chipotle tops the list, followed by Arconic—returning to the portfolio by way of Elliott, HD Supply—held by JANA, Clinton, and Gates, CBRE Group—held by ValueAct, Eminence, and Clinton, and Trinity Industries—held by ValueAct, Marcato, and Stonepine.
Shire, Red Electrica, and Industrial & FINL, were completely exited. Herbalife and Industrial & FINL saw decreases in position size due to price movement.
As of Q4 filings, Yahoo was the most widely held name in the activist portfolio, with 7 holders. Other popular names include Allergan, Nomad, Marathon, and S&P Global.
We voice concerns about liquidity often: most recently here and here, and also specifically about activist liquidity. More illiquid (>30 days to liquidate) names have not changed considerably as a percent of the activist portfolio over the past few years.
Focusing on the activist portfolio’s period of underperformance, June 2015 to December 2016, the most liquid names had the highest ROIC, while the worst performing names were the most illiquid.
For more information about hedge fund performance, take a look at our monthly State of the Industry report — an interactive dashboard of the most important factors for hedge funds, top performing securities, and top performing managers based on simulated 13F data.