Activist Jeffrey Ubben‘s 14 picks in companies with a market cap of $1 billion or more (his entire portfolio) delivered weighted average returns of 8.1% in the first quarter. These are very impressive results compared with the S&P 500 ETF (SPY) which came in at 0.9% for the same time frame. Ubben is CEO and CIO of ValueAct Capital, which he co-founded in the year 2000. The firm manages $14 billion and focuses on companies that have high-quality businesses and usually pursues representation on those companies’ boards. Over the last few years, ValueAct has had representatives appointed to the boards of 30 companies, including Microsoft Corporation (NASDAQ:MSFT) and Valeant Pharmaceuticals Intl Inc (NYSE:VRX) amongst others.
ValueAct’s strategy of focused activist investing has proven extremely successful, and forms some of the foundation for our own investing principles. ValueAct’s 13F positions returned an average of 1.29% per month between 2002 and 2012. The S&P 500 Index returned an average of 0.47% per month during the same period. All investors had to do was blindly imitate Ubben’s stock picks to outperform the market by 10 percentage points per year. This performance is even better than Warren Buffett‘s returns during the same period. But generally, imitating the moves made by billionaires and hedge funds does not guarantee great returns because most of their top picks are in large-cap stocks. These equities usually don’t beat the market by a large margin, as they are often more efficiently priced. Hence, here at Insider Monkey, we concentrate our efforts on gathering and analyzing information regarding the small-cap picks of more than 700 hedge funds.
Our research has shown that the 15 most popular small-cap stocks among hedge funds beat the market by 95 basis points per month between 1999 and 2012. There aren’t a lot of investment strategies that can beat the market by 10 percentage points a year, so we launched our strategy and began tracking the performance of hedge fund’s 15 most popular small-cap picks since the end of August 2012. These stocks returned more than 137% since then through the end of March 2015 and dominated the S&P 500 ETF (SPY)’s 54% gain by more than 82 percentage points (read the details here).
Back to Microsoft Corporation (NASDAQ:MSFT), ValueAct first purchased shares of the software maker back in 2013. Microsoft Corporation (NASDAQ:MSFT) is the largest position in ValueAct’s 13F portfolio, as the fund disclosed holding 74.24 million shares at a value of $3.45 billion. This comprises 21.6% of the firm’s 13F portfolio. ValueAct believes Microsoft Corporation (NASDAQ:MSFT) is suffering from perception problems as a Windows/PC-cycle stock. Click here to see more of our recent coverage of Microsoft Corporation (NASDAQ:MSFT). Microsoft shares fell 12% during the first quarter.
ValueAct’s next largest position was in Valeant Pharmaceuticals Intl Inc (NYSE:VRX). At the end of 2014, the firm held 19.39 million shares at a value of $2.77 billion. The position accounted for 17.3% of ValueAct’s 13F portfolio. Valeant also has a strong outlook from analysts, with a consensus ‘Buy’ rating. Recently, Deutsche Bank increased its price target on the stock to $200 with a ‘Hold’ rating, while JP Morgan reiterated an ‘Overweight’ rating with a price target of $240. Valeant also has a number of major investors among its shareholders including Andreas Halvorsen’s Viking Global and Stephen Mandel’s Lone Pine Capital. Bill Ackman’s Pershing Square also recently disclosed a 5.7% position. Shares of Valeant Pharmaceuticals Intl Inc (NYSE:VRX) surged 38.7% in the first quarter of 2015.
Last November, oilfield services giant Halliburton Company (NYSE:HAL) made headlines by agreeing to acquire Baker Hughes Incorporated (NYSE:BHI) for $34.6 billion. But as oil declined so did Halliburton Company (NYSE:HAL)’s shares, as the stock dropped from the mid $60’s to the low $50’s. Ubben saw value in both companies and added them to ValueAct’s portfolio as both stocks appeared as new positions according to his latest 13F filing for the fourth quarter of 2014. At the start of 2015, ValueAct had nearly 15.0 million shares valued at $840.91 million, but that position was updated in a January SEC filing to 21.95 million shares. In Halliburton Company (NYSE:HAL), ValueAct disclosed a position as of December 31st of 20.95 million shares with a value of $821.80 million. This accounted for 5.1% of its 13F portfolio. Baker Hughes Incorporated (NYSE:BHI)’s stock gained 13.7% for the first quarter of 2015 while Halliburton Company (NYSE:HAL) shares rose 12%.
ValueAct has been involved in Agrium Inc. (USA) (NYSE:AGU) since the third quarter of 2014, and shares jumped shortly afterwards when Wall Street first got word that ValueAct had taken an activist position in the stock. ValueAct is Agrium Inc. (USA) (NYSE:AGU)’s largest shareholder among the funds we track. At the beginning of 2015, the firm reported a holding of 8.19 million shares valued at $776.22 million. D.E. Shaw’s fund D E Shaw is a distant second with a 1.71 million share holding valued at $161.64 million. The stock rose 10.8% during the first quarter of 2015.
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