JANA Partners LLC released their second quarter update for their featured fund, JANA Master Fund Ltd. The fund posted an unaudited headline return of 11.2 percent for the year to date period ending June 30th, which is ahead of the S&P 500 market return of 9.5 percent. The fund was up 1.3% for June. Since inception in 2001, the hedge fund has returned 300%.
In their comments on the quarter, JANA indicates that it believes that the market has fallen into a pattern, where early year returns are then wiped away amid concerns around sovereign debt and a potential recession. This increases market volatility, until investors are convinced that concerns have been pushed off far enough down the road to no longer concern them in the immediate term. The firm also remains concerned about the U.S. elections, which are now only a few months away.
Performance on Standing Investments
The big drivers of performance for JANA in the first half of 2012 were the breakup of Marathon Petroleum Corp (NYSE: MPC), takeover news at TNT Express (TNTE), as well as the strategic partnership formed between Barnes & Noble, Inc. (NYSE:BKS) and Microsoft Corporation (NASDAQ:MSFT), the fund expects BKS to benefit from the Nook franchise as Microsoft adds more apps to it. JANA also benefited from improved performance at Expedia Inc (NASDAQ:EXPE), which showed a 24% year-over-year gain in its earnings report. The management also has been impressed with how the fund has performed in the wake of increased volatility in the equity markets.
Other performers in the JANA portfolio included Energizer Holdings, Inc. (NYSE:ENR), which established a dividend of $1.60, following working capital management presentations and suggestions from JANA analysts. ENR has also allocated $200 million working capital, JANA believes that these new steps will bring ENR in close competition with its peers and improve its valuation. Inergy, L.P. (NYSE:NRGY)'s responded sluggishly to the weak propane business during the warm winters. The fund felt that reallocating a dividend, and paying attention to its profitable natgas partnership would buy back investor confidence. Inergy made smart decisions by announcing a dividend of $1.50 which offered an 8 percent pay off, and also sold out its propane business to Suburban Propane Partners LP (NYSE:SPH). These moves resulted in a positive change in stock price, and will also contribute to accelerated growth through the end of the fiscal year.
Changes to the Portfolio
In terms of long investments, the fund is focused on cash flow positive firms that are on the lower end of the cyclical scale, with one example being Coca-Cola Enterprises Inc (NYSE:CCE), which was recently added to the portfolio, owing to the stability of beverage consumption even in eurozone crisis. Energy has also been virtually eliminated from the long portfolio, creating a very defensive position. On the short side, JANA is focused on a few key stories, including declining tobacco company performance, retailers that are threatened by firms such as Amazon.com, Inc. (NASDAQ:AMZN), and other specific plays based on perceived accounting or supply issues. JANA also makes note that it is short a social networking company that is struggling to monetize traffic, though it doesn’t name Facebook Inc (NASDAQ:FB) specifically .
JANA also announced a number of personnel changes, including the addition of Brandon Levin, from Plural Investments LLC, as their Head of Trading, and Lorelei Martin, from KKR Asset Management, as Chief Compliance Officer. Nicholas Phillips joins as the Managing Director, he previously served as a director in Holden Asset Management. The addition of new administrative staff signals that the company is branching off responsibilities in a more structured manner.
* Article Updated: 7:11 PM EST
Note: Correction in the article - The article first stated that the Barry Rosenstein was the CEO and has reduced his role at JANA. The article has been updated without those statements as they were incorrect.