Glenn W. Welling’s Engaged Capital has disclosed a new position in MagnaChip Semiconductor Corporation (NYSE:MX), revealing a 7.3% ownership stake in the company consisting of nearly 2.52 million shares, via a 13D filing with the Securities and Exchange Commission. Yet again, this represents a new holding for Engaged Capital, as it did not disclose any ownership of MagnaChip in its most recent 13F filing.
Engaged Capital LLC is an activist hedge fund launched by Glenn William Welling in 2012. He was backed up by a group of professionals with exceptional experience in activist investing in North America, while the seed capital for his fund was granted by Grosvenor Capital Management, which is among the oldest and largest global alternative investment managers. Engaged Capital specializes in small and mid-cap North American companies and aims to create long-term shareholder value by bringing its team’s perspective to the management and boards of the companies it invests in. The investment management firm categorizes itself as a constructive activist firm (constructivist?) with a focus on delivering superior, long-term returns for investors without engaging in public fights with the companies’ management and boards, which often results in the airing of dirty launder and makes none look the better for it. Glenn Welling, the founder and Chief Investment Officer of Engaged Capital, had acted as a Principal and Managing Director at Ralph Whitworth‘s Relational Investors, which is an activist equity fund, prior to launching his own fund. Even before that, he worked as a Managing Director at Credit Suisse as the Head of the Investment Banking Department’s Advisory Business for almost seven years. According to the fund’s most recent 13F filing, Glenn Welling and his team of professionals manage a public equity portfolio worth $133.95 million.
Following activist funds like Engaged Capital is important because it is a very specific and focused strategy in which the investor doesn’t have to wait for catalysts to realize gains in the holding. A fund like Engaged Capital can simply create its own catalysts by pushing for them through negotiations with the company’s management and directors. In recent years, the average returns of activists’ hedge funds has been much higher than the returns of an average hedge fund. Furthermore, we believe do-it-yourself investors have an advantage over activist hedge fund investors because they don’t have to pay 2% of their assets and 20% of their gains every year to compensate hedge fund managers. We have found through extensive research that the top small-cap picks of hedge funds are also capable of generating high returns and built a system around this premise. In the 34 months since our small-cap strategy was launched it has returned over 132% and beaten the S&P 500 ETF (SPY) by more than 66 percentage points (read more details).
MagnaChip Semiconductor Corporation (NYSE:MX), based in South Korea, designs and produces analog and mixed-signal semiconductors. The company’s business operations are divided into three main segments: Display Solutions, Power Solutions, and Semiconductor Manufacturing Services. The first segment mentioned produces semiconductors used in flat panel and mobile displays. The Power Solutions’ integrated and discrete circuits are used to manage the power usage for electrical devices. Whereas, the Semiconductor Manufacturing Services segment produces analog and mixed signal semiconductors used in computing and wireless markets. The shares of MagnaChip have dropped by over 34% year-to-date, owing to a substantial slump at the beginning of February. In the following article we will attempt to shed some light on why the stock plummeted so much in February, as well as what others are trying to do about it.