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A Look at 3 Activist Moves Made by Elite Hedge Funds

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It is common knowledge that high net-worth individuals have been channeling more capital into activist hedge funds over the past several years. According to Hedge Fund Research, the shareholder activist arena had nearly $128 billion in assets under management in the first half of 2015, compared to a mere $23 billion back in 2002. Activist hedge funds have generated eye-catching returns over the past several years, which likely explains the fast-increasing popularity of this type of investment strategy. Statistics reveal that activist investment strategies returned 8.5% in 2014, 19.2% in 2013, and 9.3% in 2012. Presumably, activist hedge funds did not perform as strongly in 2015 as they did during the previous three years. Nonetheless, this investment strategy is worth monitoring and analyzing, as it may be possible to generate attractive returns for individual investors solely by mimicking activists’ moves. For this reason, this article discusses three 13D (activist) filings submitted by several hedge funds tracked by Insider Monkey.

We believe that imitating hedge funds and other large institutional investors can be helpful in identifying stocks capable of outperforming the broader market. Through extensive research that covered portfolios of several hundred large investors between 1999 and 2012, we determined that following the small-cap stocks that large money managers are collectively bullish on, can generate monthly returns nearly 1.0 percentage points above the market (see more details here).

According to a freshly-amended 13D filing, Joshua Silverman’s Iroquois Capital Management LLC currently owns 1.85 million shares of LRAD Corp (NASDAQ:LRAD), which account for 5.7% of the company’s outstanding common stock. This compares to the 1.88 million-share position disclosed through the fund’s latest 13D filing on the company, which was submitted with the SEC in June of 2015. Most importantly, Iroquois sent a letter to LRAD on January 14, nominating two director candidates, Scott L. Anchin and Daniel H. McCollum, for election to the company’s Board at the upcoming 2016 annual meeting of shareholders. Furthermore, the investment management firm revealed its discontent with LRAD Corp (NASDAQ:LRAD)’s underperformance despite encountering numerous growth opportunities.

LRAD develops and markets directed acoustic products that beam, focus and control sound over short and long distances. The company reported total revenue of $16.78 million for fiscal year 2015, down by 31.7% year-over-year. Although Iroquois blames LRAD’s President and CEO Thomas R. Brown for this outcome, it appears that some factors that affected the company’s top-line growth were beyond the CEO’s control. The reduced defense spending by the U.S put some weight on the company’s revenue, while one of LRAD’s sizable orders in fiscal year 2014 (including a $4 million order for border security in the Middle East) did not recur in the following year. However, the disappointing performance of LRAD is unacceptable if considering that the mass notification market is anticipated to grow to $6.41 billion in 2018 from $2.41 billion in 2013. The shares of LRAD are down by 31% over the past year and trade at an attractive trailing price-to-earnings ratio of 6.07, which compares very favorably to the average of 21.04 for the S&P 500 companies. A mere five hedge funds had the company in their portfolios at the end of the third quarter, amassing 13.10% of its outstanding shares. Royce & Associates, founded by Chuck Royce, upped its stake in LRAD Corp (NASDAQ:LRAD) by 23% during the September quarter to 1.17 million shares.

Let’s head to the next pages of this article, where we discuss two other 13D filings, submitted by Richard McGuire of Marcato Capital Management and John Orrico of Water Island Capital.

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