Activist investors come with a variety of different strategies as they attempt to create shareholder value at the companies they are targeting. Big names like Carl Icahn and Bill Ackman dominate the headlines, but you may be surprised to know that for as much press as activism garners, very few funds target more than one company at a time.
In fact, the number of funds that consider themselves to focus primarily on activist strategies is much larger than the number of those that actually do.
Only 8% of activists…
The folks at Activist Insight have just released their latest edition of Activism Monthly. They report that only “8% of activists have targeted 11 or more companies since 2010.” (All charts and graphs in this article are courtesy Activist Insight.)
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This would suggest that even though activist investors apparently love to make waves in the media, they are very few in number. Indeed, many may be hard pressed to name more than five or ten activist investors when prompted.
However, Activist Insight also reports that over 100 investors listed in Activist Insight Online say activism is a “primary focus.” One would think that these investors are “mostly if not wholly activist,” according to the publication, but that’s a significantly bigger number than the 8% who said activist is a primary focus. At last count, the website had 565 investors registered in its database.
The publication lists the greatest majority as “one-off campaigners, which makes spotting the awkward customer on your share register that little bit harder,” the folks at Activist Insight wrote.
Activism spreading around the globe
The publication also looked at the geographical locations of activist investors, and unsurprisingly, the vast majority, 424, to be exact, are located in the U.S. However, there are signs that activists are starting to take an interest in Europe, or more specifically, the U.K.
The U.K. is home to offices of 115 activist investors, making that the top country for activists in Europe. This would suggest that the U.K. may become the next big battleground for activist investors. Nonetheless, the biggest European campaigns we’ve heard about so far are in Sweden in France.
In Asia, Japan is unsurprisingly attracting the attention of activists, although apparently Australia and Hong Kong show signs of potentially piquing their interest in the near future.
Broad range of assets under management by activists
So how much in assets does the typical activist investor manage? As it turns out, the range is quite wide, with the majority of funds spanning from $100 million to $10 billion in assets under management. Here’s how the numbers break down:
In terms of returns, activist investors are broadly underperforming the S&P 500. Note: Many will take issue with comparing hedge funds to the S&P 500 since the funds are “hedged”, but for many activist funds this is not the case as they are mostly long. Individually, however, some funds are doing very well. For example, Starboard Value, which holds the top position in Activist Insight’s database, clocked an average annualized rate of 39.9% last year.
Activist insight also found that nearly half of all activists have a portfolio with a value of less than $50 million. That’s quite a small amount compared to the top headline maker, Carl Icahn, who managed a portfolio worth nearly $32 billion as of the end of 2014, according to regulatory documents.
Carl Icahn made the most headlines
Speaking of headlines, Carl Icahn has a commanding lead over other activists in terms of making waves in the media. The next closes activist is Bill Ackman and his fund Pershing Square Capital Management. Here’s a look at how the top three activists stack up to each other in terms of having the most news stories since 2012, according to Activist Insight:
S&P 500 pulls ahead of activist investors
Further, the publication found that activists are starting to slip in terms of returns. The Activist Insight Activist started to lag behind the S&P 500 last year on a compounded basis. The year marked the third in a row in which the strong U.S. stock market brought higher returns than the world’s activist investors. Indeed, Activist Insight’s data backs up data released recently by Morgan Stanley.
In 2014, activist investors average a net return of 5.6%, compared to the S&P 500’s return of 13.7%. Last year the tide didn’t turn until the second half of the year, however, as the S&P recorded almost a 5% return in the fourth quarter alone, compared to the Activist Index’s 2.6% return during the quarter.
The only other time in recent years when the S&P 500 beat the Activist Index was at the end of 2013, and it wasn’t by much. Then last year, the index led for most of the year despite very strong performances from Ackman’s Pershing Square and Starboard Value. Falling oil prices and uncertainty on the political front tripped up most other activists.
The Activist Index did do better compared to the MSCI World Index, however, as it returned 2.9% last year as political turmoil gripped much of the world and growth in emerging markets slowed.
Since 2009, the S&P 500 has returned 159%, compared to the Activist Index’s 156%. Activists continue to pull ahead of the MSCI, however, widening its lead to over 42 percentage points since then.
Activist investing in 2015
This year, analysts at Deutsche Bank think the U.S. stock market could face a major correction of up to 10%. On the other hand, the European stock markets could benefit from the central bank’s QE programs, which could help European activists. All in all, one thing’s for sure.
Activist investors are going to have to walk a fine line this year if they’re going to convince other shareholders that they provide long term value rather than just short term value. This is a debate that has raged on for some time, with some studies already starting to suggest that, in general, activists are more likely to create short value than long term value.
For more on the latest activist trends, check out Activist Monthly Premium. They’ve got an excellent interview with Anne Sheehan from the California State Teachers’ Retirement System in the latest issue.