Blue Harbour has primarily invested in activist situations since its founding in 2004, and recently launched a long-only fund in order to expand its investor base in that strategy. Its flagship fund- which often takes short positions, running afoul of some institutional investors’ requirements- has over $1 billion under management and outperformed the S&P 500 in 2012. The fund was founded by a former partner at private equity giant KKR, Clifton Robbins.
Along with many other hedge funds, Blue Harbour is required to file quarterly 13Fs with the SEC. We track these filings in our database and use the information to develop investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year). We have gone through the fund’s most recent filing and here are its five largest holdings by market value as of the end of March (or see the full filing at the SEC’s website):
Blue Harbour’s top pick was CACI International Inc (NYSE:CACI), a $1.4 billion market cap IT solutions and services company primarily serving defense, intelligence, and national security markets. CACI International Inc (NYSE:CACI) is a popular short target, with the most recent data showing 21% of the float held short despite the fact that the trailing P/E is only 9. Business has started to slip a bit, and we’d imagine that the market is somewhat concerned that cuts to U.S. military spending will result in lower revenue for CACI International Inc (NYSE:CACI) and its peers.
The fund reported a position of 5.5 million shares in iGATE Corporation (NASDAQ:IGTE), another IT services company; iGATE Corporation (NASDAQ:IGTE) has a market capitalization of only about $960 million, but on average about 200,000 shares are traded per day and the current market price is over $16. Wall Street analysts are bullish on the stock, with earnings per share expected to rise considerably over the next couple years with the result being a forward earnings multiple of 9 and a five-year PEG ratio of 0.5, but the market is apparently less optimistic.
Jack in the Box Inc. (NASDAQ:JACK) was another of Blue Harbour’s top picks with the filing disclosing ownership of a little over 3 million shares. The quick service restaurant company- which also owns the Qdoba’s Mexican Grill brand- carries a premium valuation in the market at 25 trailing earnings, matching the high prices of many of its industry peers. In its most recent quarter earnings were up strongly compared to the same period in the previous fiscal year although revenue growth was only 2% and so this degree of improvement in net income is likely not sustainable.