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Is A Down Market Really Bleak For Activist Funds?

Is A Down Market Really Bleak For Activist Funds? by Activist Insights

Recent months have seen several commentators express the view that a downward-trending market will harm activist funds more than most. With 2016 now in full flow and the S&P 500 down 4% over two months, Activist Insight opted to look at whether the market has a major impact on activism.

To answer the question, Activist Insight undertook an analysis of its unique index of dedicated activist funds, the Activist Insight Index (full years: 2010-2015).

As detailed below, the Activist Insight Index outperformed the S&P 500 in months where the latter posted a negative return, but underperformed when the S&P 500 Index was positive at the month-end. The data set spanned all years for which Activist Insight had full coverage: 2009-2015.

Activist funds – Average performance in “up” months

Activist Insight Index (Net return) S&P 500 (Total return)
3.28% 3.58%

 

Average performance in “down” months

Activist Insight Index (Net return) S&P 500 (Total return)
(2.82%) (3.41%)

 

Annual performance

YEAR AI INDEX
FUNDS
AI INDEX S&P 500
2009 24 48.60% 26.46
2010 27 20.70% 15.06
2011 29 (9.99)% 2.11
2012 33 17.02% 16.00
2013 37 28.83% 32.38
2014 36 6.82% 13.68
2015 27 1.64% 1.40

 

As the data make clear, the Activist Insight Index has outperformed during the seven-year upswing in the S&P 500 Index, which has not ended a year down since 2008. The data could lend credence to the argument that activist funds are better-hedged versions of the broader market

That may not be the full story, however. Activist Insight was able to identify performance data for 17 funds from 2008 – the year of the Global Financial Crisis and the last time the S&P 500 Index went into freefall – and the numbers are not pretty.

Average monthly returns from 2008

Activist Funds (Net return) S&P 500 (Total return)
(4.71%) (3.60%)

 

The above data may be explained by an argument used by critics of activist funds who cite the propensity of hedge funds to pile into activist-targeted stocks, thereby increasing volatility in the share price.

Commenting on the data, Activist Insight spokesman Josh Black said “While only covering a single cycle, the data is likely to embolden both supporters of activism who believe it outperforms passive indices, and critics, who say it is subject to greater volatility. Ultimately, the next few years will tell us a lot more about the robustness of the activist business model.”

Notes: The Activist Insight Index is a non-weighted index of approximately 30 funds that dedicate their entire portfolios to activist investing. Said funds invest in a number of different markets, including Europe and Asia, as well as the US and Canada. While many of the same funds are represented in every year, the exact composition of the Index may vary. Each year contains a full set of performance figures from its constituent funds.

For more information or if you have queries about the data, please contact Josh Black using the above details.

About Activist Insight

Since 2012, Activist Insight has provided its diverse range of clients with the most comprehensive information on activist investing worldwide. Regularly quoted in the financial press, Activist Insight is the trusted source for data in this ever-evolving space. Activist Insight offers two great products: Activist Insight Online and Activism Monthly Premium magazine, and counts many of the world’s leading investment banks, law firms, shareholder communications firms and institutional investors as its clients.