Five Big Equity Bets Behind JANA Partners’ First Annual Loss Since 2011

Since its inception in 2001, billionaire Barry Rosenstein‘s value-oriented, event-driven activist hedge fund JANA Partners has made a name for itself as one of the best performing fund in the history. However, like for many other hedge funds, the year 2015 didn’t turn out favorable for JANA Partners. According to Reuters, 2015 was the third year in the fund’s history when it lost money. Prior to this, JANA had posted a meager loss of 2.1% in 2011 and 23.6% in 2008 in the midst of the financial crisis. We looked at some of JANA’s largest holdings in companies whose stocks have slumped significantly last year, based on its 13F filings from the past several quarters. Particularly, five stocks had a significant negative impact on JANA’s returns and in this article we are going to discuss how each of them individually contributed to the fund’s poor performance.

Following activist funds like JANA Partners 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 JANA Partners 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 37 months since our small-cap strategy was launched it has returned over 102% and beaten the S&P 500 ETF (SPY) by more than53 percentage points (read more details).

#5 Time Warner Inc (NYSE:TWX)

– Shares Owned by JANA Partners (as of September 30): 4 Million

– Value of Holding (as of September 30): $275.46 Million

Let’s start with Time Warner Inc (NYSE:TWX) in which JANA Partners initiated a stake during the first quarter of 2015 and subsequently increased it by 273% in the second quarter. Shares of Time Warner Inc (NYSE:TWX) fell off a cliff in August after the company reported its second-quarter results and ended the third quarter down by over 20%. Although JANA Partners reduced its stake in the company by 15% during that period, it wouldn’t have shielded it from the losses suffered by the stock. On December 10, analysts at Citigroup reiterated their ‘Buy’ rating on Time Warner’s stock, but lowered their price target to $83 from $95, which represents a potential upside of 28% from the stock’s current trading price. Billionaire Ken Griffin‘s Citadel Investment Group more than doubled its stake in the company to nearly 4.4 million shares during the third quarter.

#4 Hertz Global Holdings Inc (NYSE:HTZ)

– Shares Owned by JANA Partners (as of September 30): 39.2 Million

– Value of Holding (as of September 30): $655.67 Million

Car rental company Hertz Global Holdings Inc (NYSE:HTZ) lost almost 44% of its market capitalization in 2015 and that loss has definitely created a large impact on JANA Partners returns. The fund boosted its position by 217% heading into 2015 and consequently increased it by 20% and 1% during the first and second quarter of the year, respectively. However, it seems the continuous underperformance of the stock might have taken a toll on the fund’s conviction during the third quarter, forcing it to reduce the stake in Hertz Global Holdings Inc (NYSE:HTZ) by 7%. Hertz has been one of the favorite stocks among activist investors in the last few years, but that hasn’t been helping the stock much. JANA went activist on the company in 2014, when it sent a letter asking the company’s Board to replace the CEO, joining Carl Icahn, another activist investor. CEO Mark Frissora stepped down in September 2014, but the new CEO, John P. Tague, was not the candidate that JANA had suggested (Scott Thompson). On November 6, the company yet again disappointed the Street by reporting lower-than-expected EPS of $0.49 on revenue of $2.98 billion for the third quarter, following which its shares tumbled heavily. Carl Icahn‘s Icahn Capital LP has revealed in a filing recently that it has increased its stake in Hertz Global Holdings Inc to 14.3% from 11.34%.