Jeffrey Ubben Has a Surprise Entry Among His Top Stock Picks

It is not every quarter that you get to spot drastic changes in the equity portfolio of Jeffrey Ubben‘s ValueAct Capital. The fund invests with a long term perspective and the average holding period of its stock picks is in the vicinity of three years. However, there was a surprise packed in for investors tracking ValueAct Capital, according to the firm’s latest 13F filing with the SEC for the reporting period of March 31.

VALUEACT CAPITAL

Prior to establishing ValueAct in 2000, Ubben served for five years in Richard Blum‘s Blum Capital Partners as a Managing Partner. ValueAct is a relatively large fund with $19.4 billion in assets under management. The market value of its equity portfolio increased to $18.09 billion from $15.96 billion at the end of the fourth quarter. The technology and healthcare sectors contributed the most to this value, with the top holdings being Valeant Pharmaceuticals Intl Inc (NYSE:VRX), Microsoft Corporation (NASDAQ:MSFT), and Halliburton Company (NYSE:HAL). As is expected of long-term investing, the turnover ratio of 20% for the first quarter was towards the lower end. ValueAct also has a concentrated portfolio with a total of 15 holdings, with its top three picks constituting nearly 47% of the fund’s portfolio value.

As far as the importance of tracking hedge funds like ValueAct Capital is concerned, we discovered through our research that a portfolio of the 15 most popular small-cap picks of hedge funds beat the S&P 500 Total Return Index by nearly a percentage point per month between 1999 and 2012. On the other hand the most popular large-cap picks of hedge funds underperformed the same index by seven basis points per month during the same period. In forward tests since August 2012 through April 2015 our strategy beat the market by more than 80 percentage points (read the details here), returning 139%. Hence a retail investor needs to isolate himself from the herd of investors chasing large-cap stocks and take advantage of the prevalent arbitrage opportunities in the market by concentrating on these money-making small-cap stocks.

Valeant Pharmaceuticals Intl Inc (NYSE:VRX) was ValueAct’s largest holding and remained unchanged at 19.39 million shares, valued at $3.85 billion. It represented about 21.28% of the fund’s portfolio value. The stock has appreciated by a staggering 57% so far this year. Valeant Pharmaceuticals Intl Inc (NYSE:VRX) reported impressive first quarter financial results, posting a 108% increase in net income from the same quarter last year with an EPS of $0.21, while revenues of $2.19 billion also marked a 15.9% increase on a year-over-year basis. During the company’s earnings call, Mike Pearson, CEO of Valeant Pharmaceuticals Intl Inc (NYSE:VRX), announced that the the latest acquisitions of Dandreon and Salix have almost been integrated and that the company expects that synergies from Salix will exceed $530 million, most of it being realized by the end of the second quarter. Meanwhile, Dandreon’s $130 million in synergies will most likely be realized by the end of this year. After ValueAct, Andreas Halvorsen‘s Viking Global and Stephen Mandel’s Lone Pine Capital are the second and third-largest stockholders of Valeant Pharmaceuticals Intl Inc (NYSE:VRX) respectively, among the funds we track.