Practical analysis for investment professionals
19 May 2014

13F Watch: Activist Investors Fill the Void

Thanks to a bull market and strong relative returns, assets under management for activist investors have swelled — tripling in just the last five years — allowing these high profile fund managers to launch more campaigns and take on bigger companies. There have been well over 200 activist campaigns launched in each of the past three years, an eight-fold increase since 2000. Even Apple (AAPL), the biggest company by market capitalization in the US, has been targeted by multiple activists eyeing its cash stockpile.

Once derided as short-term profiteers, activist investors have managed to reinvent themselves as shareholder advocates. They’ve demonstrated a willingness to take on management and boards in the name of maximizing shareholder value, a role too often shirked by institutional shareholders (see Warren Buffett’s abstention vote on the recent Coca-Cola compensation plan). According to a McKinsey & Company study, “the median activist campaign reverses a downward trajectory in target-company performance and generates excess shareholder returns that persist for at least 36 months.”

While 13F filings are dated and don’t necessarily present a complete picture of a manager’s holdings — they don’t include short positions — the growing influence of activist investors and the positive impact they have on share prices suggest that they deserve our attention.

Here’s a quick recap of the notable changes made during the first quarter of 2014 by some widely followed activist investors and other prominent portfolio managers:

  • Bill Ackman (Pershing Square Capital): Ackman established new positions in Platform Specialty Products (PAH), Apartment Investment and Management (AIV), Allergan (AGN), and Home Properties (HME), and sold positions in General Growth Properties (GGP) and Procter & Gamble (PG). At the end of the first quarter, Ackman’s top holdings were Canadian Pacific Railway (CP), Air Products & Chemicals (APD), Burger King Worldwide (BKW), Beam (BEAM), and Platform Specialty Products (PAH).
  • Bruce Berkowitz (Fairholme Funds): Berkowitz reported new stakes in Vodafone Group (VOD) and AT&T (T), added to his existing position in Sears Holdings (SHLD), and reduced stakes in American International Group (AIG), Leucadia National (LUK), Berkshire Hathaway (BRK/B), Chesapeake Energy (CHK), and Fannie Mae (FNMA). At the end of the first quarter, American International Group (AIG), Bank of America (BAC), Sears Holdings (SHLD), St Joe (JOE), and Leucadia National (LUK) remained Fairholme’s top holdings.
  • Warren Buffett (Berkshire Hathaway): Berkshire disclosed a new position in Verizon (VZ), and added to stakes in Liberty Global (LBTYK), Wal-Mart Stores (WMT), International Business Machines (IBM), DaVita HealthCare Partners (DVA), US Bancorp (USB), and Verisign (VRSN). Buffett reduced positions in Phillips 66 (PSX), General Motors (GM), Starz (STRZA), and DIRECTV (DTV). Top holdings at the end of the first quarter were Wells Fargo (WFC), Coca-Cola (KO), American Express (AXP), International Business Machines (IBM), and Wal-Mart Stores (WMT).
  • David Einhorn (Greenlight Capital): Einhorn’s largest new positions included CONN’S (CONN), American Capital Agency (AGNC), National-Oilwell Varco (NOV), Lam Research (LRCX), Talmer Bancorp (TLMR), and Nokia (NOK). Sold from the portfolio were positions in General Motors (GM), Delphi Automotive (DLPH), NCR (NCR), DST Systems (DST), Western Potash (WPX), and Legg Mason (LM). Top holdings at the end of the first quarter included Apple (AAPL), Micron Technology (MU), Marvell Technology Group (MRVL), Cigna (CI), and Oil States International (OIS).
  • Jeremy Grantham (GMO): GMO’s largest new positions included Xilinx (XLNX), NetApp (NTAP), Time Warner Cable (TWC), Honeywell International (HON), and Rockwell Automation (ROK). Notable sells included Brookfield Office Properties (BPO), Comcast (CMCSK), Martin Marietta Materials (MLM), Domtar (UFS), and Xerox (XRX). At the end of the first quarter, GMO’s top holdings included Microsoft (MSFT), IBM (IBM), Oracle (ORCL), Johnson & Johnson (JNJ), and Philip Morris International (PM).
  • Carl Icahn (Icahn Associates): Icahn established a new position in eBay (EBAY), and added to his stakes in Apple (AAPL), and Herbalife (HLF). Netflix (NFLX) was sold out of the portfolio. At the end of the first quarter, top holdings included Apple (AAPL), CVR Energy (CVI), Forest Laboratories (FRX), which has agreed to be acquired by Actavis (ACT), Federal-Mogul (FDML), and Chesapeake Energy (CHK).
  • Seth Klarman (Baupost Group): Klarman added new positions in Cheniere Energy (LNG), Keryx Biopharmaceuticals (KERX), RF Micro Devices (RFMD), and TriQuint Semiconductor (TQNT), and added to stakes in Idenix Pharmaceuticals (IDIX), Via Sat (VSAT), PBF Energy (PBF), and Theravance (THRX). Positions were eliminated in Fidelity National Financial (FNF), Rovi (ROVI), and Enzon Pharmaceuticals (ENZN), and reduced in BP (BP), and Kindred Biosciences (KIN). Top holdings at the end of the first quarter included Micron Technology (MU), Via Sat (VSAT), Theravance (THRX), Idenix Pharmaceuticals (IDIX), and Cheniere Energy (LNG).
  • Dan Loeb (Third Point): Loeb’s largest new positions established during the quarter included Actavis (ACT), CF Industries Holdings (CF), Verizon (VZ), Roper Industries (ROP), and Citrix Systems (CTXS). Sold from the portfolio were Yahoo! (YHOO), Abbott Laboratories (ABT), B/E Aerospace (BEAV), Gilead Sciences (GILD), and Marathon Petroleum (MPC). At the end of the first quarter, top holdings included Actavis (ACT), Dow Chemical (DOW), T-Mobile US (TMUS), American International Group (AIG), and Sothebys (BID).
  • Howard Marks (Oaktree Capital): Marks’ largest new positions included Diamond Foods (DMND), Ocwen Financial (OCN), Telecom Argentina (TEO), Oi (OIBR), and Paragon Shipping (PRGN). Notable deletions from the portfolio included Delphi Automotive (DLPH), Tata Consultancy Services (TCS), Baidu (BIDU), America Movil SAB de CV (AMX), and Compania de Minas Buenaventura (BVN). Top holdings at the end of the first quarter included EXCO Resources (XCO), Masonite International (DOOR), First BanCorp/Puerto Rico (FBP), Dynegy (DYN), and Alliance HealthCare Services (AIQ).
  • Nelson Peltz (Trian Partners): Peltz added to positions in Du Pont (DD), PepsiCO (PEP), Mondelez (MDLZ), Ingersoll-Rand (IR), and Family Dollar Stores (FDO), and reduced stakes in Wendy’s (WEN), Allegion (ALLE), GNC Holdings (GNC), and Lazard (LAZ). Top holdings at the end of the first quarter included Mondelez (MDLZ), PepsiCO (PEP), Ingersoll-Rand (IR), Legg Mason (LM), and Wendy’s (WEN).
  • Barry Rosenstein (Jana Partners): Rosenstein’s largest new positions established during the first quarter included AerCap Holdings (AER), Leucadia National (LUK), eBay (EBAY), Constellium (CSTM), and Liberty Interactive (LINTA). Notable sells from the portfolio included Charter Communications (CHTR), Safeway (SWY), Huntsman (HUN), Allegion (ALLE), and Mondelez International (MDLZ). At the end of the first quarter, top holdings included Walgreen (WAG), Oil States International (OIS), Ashland (ASH), Equinix (EQIX), and Cameron International (CAM).
  • David Tepper (Appaloosa Management): Tepper’s established new positions in Priceline Group (PCLN), Expedia (EXPE), and Facebook (FB), while notable sells during the quarter included Fluor (FLR), Hartford Financial Services Group (HIG), EMC (EMC), Transocean (RIG), and Foster Wheeler (FWLT). At the end of the first quarter, top holdings included Citigroup (C), American Airlines Group (AAL), Halliburton (HAL), Goodyear Tire & Rubber (GT), and HCA Holdings (HCA).

Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

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About the Author(s)
David Larrabee, CFA

David Larrabee, CFA, was director of member and corporate products at CFA Institute and served as the subject matter expert in portfolio management and equity investments. Previously, he spent two decades in the asset management industry as a portfolio manager and analyst. He holds a BA in economics from Colgate University and an MBA in finance from Fordham University. Topical Expertise: Equity Investments · Portfolio Management

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