Fresh data shows that 2015 was the year with the highest number of hedge fund closures since the financial crisis, as increased volatility in equity markets significantly impacted the performance of the hedge fund industry. A total of 979 funds closed in 2015, compared to 864 registered in 2014. The survivor principle, which simply means that unsuccessful hedge funds go out of business, may play a key role in the performance of the hedge fund industry in the foreseeable future. According to data provider Hedge Fund Research, the average hedge fund was down by 3% in the first two months of 2016, but the performance of the entire industry has surely improved given the recent rally in U.S equities. Leaving this discussion aside, the following article will examine four SEC filings submitted by several widely-known hedge funds tracked by Insider Monkey.
At Insider Monkey, we track around 785 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).
According to a newly-amended 13D filing with the SEC, Jeffrey Ubben’s ValueAct Capital currently owns nearly 8.52 million shares of Motorola Solutions Inc. (NYSE:MSI), which account for 4.9% of the company’s outstanding common stock. This is down from the stake of 8.76 million shares revealed in a Form 4 filing discussed by Insider Monkey on Friday. The activist investment firm owned 17.59 million shares of Motorola Solutions on December 31, as disclosed in the fund’s 13F for the October-to-December period. As discussed in several articles on Mr. Ubben’s investment in Motorola Solutions Inc. (NYSE:MSI), ValueAct Capital disclosed a 5.9% stake in the telecommunications company in June 2011. The friendly activist fund amassed a 10% stake through the end of 2012 and the fund’s investment has paid off handsomely in the subsequent years. However, the simple fact that Mr. Ubben’s firm has been gradually offloading its position in Motorola Solutions (taking some profits off the table) does not necessarily imply that the stock does not represent an attractive investment opportunity, so let’s take a brief look at the company’s recent financial performance.
Motorola Solutions primarily conducts its business through two segments: Products and Services. The Products segment, which derives revenue from a portfolio of infrastructure, devices, accessories, and software, generated net sales of $3.7 billion in 2015, a decrease of $131 million or 3% year-over-year. Meanwhile, the Services segment, which relies on a set of service offerings for government, public safety, and commercial communication networks, registered net sales of $2.0 billion in 2015, a decrease of $55 million or 3% year-over-year. Challenging macroeconomic conditions in Latin America and Eastern Europe, and foreign exchange headwinds negatively impacted the performance of the two segments. In the meantime, the stock is priced at around 14.8-times expected earnings, versus the forward P/E multiple of only 12.0 for the Communications Equipment industry. William B. Gray’s Orbis Investment Management trimmed its stake in Motorola Solutions Inc. (NYSE:MSI) by 12% in the December quarter, ending the year with 13.05 million shares.
The next two pages of this article discuss three separate filings submitted with the SEC by Corvex Capital and two other investment firms.