Billionaire Jeffrey Ubben’s Latest Moves and His Top Bets This Year

Billionaire Jeffrey Ubben is among the few activist investors today who, unlike more aggressive activists that pressurize companies to accept their demands, focuses on establishing a constructive dialogue with the management and board of directors and through that he seeks to bring about meaningful changes. His hedge fund, ValueAct Capital, uses a simple investment strategy of acquiring a significant stake in a handful of companies that it believes are undervalued. Then the fund tries to engage with their management to implement strategies that maximize returns for all shareholders. Our analysis of the fund’s 13F holdings in companies worth at least $1 billion reveals that the 15 long positions held by the fund delivered a weighted average return of 1% in 2015, compared to the nearly flat returns generated by the S&P 500 during the same period. Since the fund recently disclosed its equity portfolio in a 13F filing, in this post we will take a closer look at its largest equity holdings going into 2016 and see its top moves made during the fourth quarter.

At Insider Monkey, we track more than 700 hedge funds, whose 13F filings we analyze as part of our small-cap strategy. Our research has shown that imitating a portfolio that includes the 15 most popular small-cap stocks among hedge funds can outperform the market by as much as 95 basis points per month on average (see more details here).

Let’s start with stock-index provider Msci Inc (NYSE:MSCI), in which ValueAct reduced its stake by 33% to 6.33 million shares, amid an over 20% rise in the company’s stock during the fourth quarter. At the end of December, this stake was worth $456.39 million and amassed 3.16% of the fund’s portfolio. Shares of Msci Inc (NYSE:MSCI) saw an unprecedented rise last year after the company conceded to ValueAct’s demand of appointing three new directors to its board in January, which included one of the fund’s partners, Robert Hale. Though the stock started 2016 on a weak note, it has recouped most of the losses and is now trading in the green owing to better-than-expected results the company reported for its fiscal fourth quarter. While analysts had expected EPS of $0.59 on revenue of $272.34 million, MSCI declared EPS of $0.66 on revenue of $272.90 million. Other hedge funds which reduced their stake in the company during the fourth quarter included James Parsons‘s Junto Capital Management, which trimmed its holding by 10% to nearly 600,000 shares.

Halliburton Company (NYSE:HAL) was another stock in which ValueAct reduced its stake significantly during the fourth quarter. The fund sold over 20.6 million shares, reducing its holding to 16.5 million shares worth $561.81 million as of December 31. ValueAct was betting on Halliburton Company (NYSE:HAL)’s merger with Baker Hughes Incorporated (NYSE:BHI) by acquiring a substantial stake in both companies. Hence, it is quite possible that by reducing its stake in Halliburton, the fund tried to reduce its overall exposure to the deal, considering that stocks of both companies have plummeted heavily in the last few months and the deal is facing a lot of regulatory hurdles. To reduce its capital expenditure further, Halliburton Company (NYSE:HAL) has announced that it would lay off 5,000 employees, which brings its total workforce reduction to around 27,000 since 2014 when headcounts peaked. Joe Dimenna’s  Zweig Dimenna Partners boosted its stake in Halliburton Company by over 300% to 923,029 shares during the fourth quarter.

Amid a 14% rise in its stock, Adobe Systems Incorporated (NASDAQ:ADBE) jumped four spots during the fourth quarter and became ValueAct’s third-largest equity holding at the end of December. The fund didn’t make any changes to its holding during that period and owned 14.01 million shares worth nearly $1.32 billion at the end of December. Shares of Adobe Systems Incorporated (NASDAQ:ADBE) have appreciated significantly since ValueAct initiated its stake and went activist in 2012. Kelly Barlow, a partner at ValueAct Capital, who is also a member of Adobe’s board is not standing for a re-election at Adobe’s 2016 annual meeting along with two other board members and since no replacements have been nominated for these three departing board members, the company has revealed recently that its board will consist of only 10 members instead of 13. For its fiscal 2016 first quarter, analysts are expecting the company to report EPS of $0.61 on revenue of $1.34 billion versus EPS of $0.44 on revenue of $1.11 billion it delivered for the same quarter of the previous year.

Though ValueAct reduced its holding in Valeant Pharmaceuticals Intl Inc (NYSE:VRX) by 23% during the second quarter, the fund didn’t cut its stake any further amid a 55% decline in Valeant Pharmaceuticals Intl Inc (NYSE:VRX)’s stock during the second-half of the year and continued to own nearly 15 million shares of the company worth $1.52 billion at the end of December. However, ValueAct was not the only activist hedge fund whose returns in 2015 were dragged down by Valeant Pharmaceuticals Intl Inc (NYSE:VRX). Bill Ackman’s Pershing Square, which owned nearly 16.6 million shares of the company at the end of last year, also shared a similar fate. So far this year, Valeant Pharmaceuticals’ stock has lost almost 30%. On Monday, the company announced that its CEO Michael Pearson would resume his role following a medical leave. In addition, it also informed shareholders that it is delaying the release of its fourth quarter earnings report and has withdrawn its guidance for the current year.

Despite ValueAct cutting its stake in the company by one-fourth to 56.62 million shares during the fourth quarter, Microsoft Corporation (NASDAQ:MSFT) remained the fund’s top stock pick going into 2016, having amassed 21.74% of the value its equity portfolio at the end of December. ValueAct disclosed this reduction last November, citing the rise of Microsoft Corporation (NASDAQ:MSFT)’s stock price in October and November as the reason behind the move. From the time ValueAct acquired a seat on Microsoft Corporation (NASDAQ:MSFT)’s board in 2013, it started pushing the company to increase its focus on enterprise and cloud operations. Those efforts have started bearing fruit in the last few quarters with Microsoft transitioning its Office software to a a subscription-based revenue model from a licensing-based model and its cloud platform, Azure, showing remarkable growth. Microsoft’s stock trades at a reasonable forward P/E of 16.61, and it sports an attractive dividend yield of nearly 3%. David Fear‘s Thunderbird Partners initiated a stake in Microsoft Corporation during the fourth quarter by purchasing nearly 2.25 million shares.

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