Jeffrey Ubben‘s ValueAct Capital has delivered some of the biggest returns in the industry during its 19-year history, with its net returns topping 17% on average through 2017. And whereas many successful funds have lagged badly in recent years, ValueAct has continued to excel, outpacing the market between 2013 and 2017. Ubben, who employs a friendlier activist approach than some of his peers, has stepped down as CIO of the fund he founded in 2000, but remains its CEO.
Ubben’s fund followed in the recent footsteps of some other investment firms, which have stressed a new focus on investing in socially- and environmentally-conscious companies. The fund’s ValueAct Spring Fund launched early this year and initially hoped to raise up to $100 million, with one of the fund’s Q3 purchases being made for that fund (more on that below). Far from just being an altruistic endeavor, Ubben believes there is money to be made from investing in companies that will benefit society.
ValueAct’s 13F portfolio contained 19 long positions on September 30, climbing by two after it added three new holdings and exited one former position during Q3. However, as that one position was one of its largest, the value of the fund’s portfolio declined by $880 million to $10.17 billion quarter-over-quarter. Finance stocks jumped to 45.67% weighting within that portfolio, more than double the figure from a year earlier, with Ubben being dumbfounded by how cheap finance stocks are right now.
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On the next page we’ll check out the stocks ValueAct was most bullish on heading into Q4, as well as a stock that it unloaded around all-time highs.
Stocks Bought in Q3
DENTSPLY SIRONA Inc. (NASDAQ:XRAY)
– Shares Bought During Q3: 2.20 million
– Value of Holding (as of September 30): $83.03 million
– Q4 Return (through December 14): -2.04%
– Forward P/E Ratio: 16.88
– Forward Dividend Yield: 0.95%
ValueAct opened a new position in DENTSPLY SIRONA Inc. (NASDAQ:XRAY) during Q3 after shares of the company imploded by nearly 50% during the first three quarters of the year. There was a 22% jump in the number of hedge fund shareholders of the dental equipment company during the quarter after a large decline during Q1.
Hawaiian Electric Industries, Inc. (NYSE:HE)
– Shares Bought During Q3: 1.20 million
– Value of Holding (as of September 30): $42.61 million
– Q4 Return (through December 14): +8.88%
– Trailing P/E Ratio: 22.85
– Forward Dividend Yield: 3.20%
ValueAct also added Hawaiian Electric Industries, Inc. (NYSE:HE), one of the 50 Best Utility Dividend Stocks To Invest In, to its 13F portfolio during the third quarter, being the stock bought for its Spring Fund. In a presentation at the Capitalize for Kids conference in October, Ubben said the utility company represents an “Amazon-like opportunity” and is the first electricity-related growth stock in “a long, long time”.
Citigroup Inc. (NYSE:C)
– Shares Bought During Q3: 1.05 million
– Value of Holding (as of September 30): $1.88 billion
– Q4 Return (through December 14): -23.31%
– Forward P/E Ratio: 7.22
– Forward Dividend Yield: 3.27%
Citigroup Inc. (NYSE:C) was one of two major investment banks that ValueAct kept pumping money into during Q3, as it continued to push the weighting of finance stocks within its 13F portfolio ever higher. The fund has called the banking sector “irrationally cheap” and said “major banks are safer investments than they have ever been in our lifetimes,” in its investor letters from Q1 and Q2.
Morgan Stanley (NYSE:MS)
– Shares Bought During Q3: 2.10 million
– Value of Holding (as of September 30): $969 million
– Q4 Return (through December 14): -14.88%
– Forward P/E Ratio: 7.67
– Forward Dividend Yield: 3.03%
ValueAct also hiked its Morgan Stanley (NYSE:MS) position by another 11% in the third quarter. Billionaires were taking notice of how cheap Morgan Stanley shares have become as well, as it ranked highly among the 20 Dividend Stocks That Billionaires Are Piling On. The finance sector has continued to struggle into Q4 however, falling into a bear market.
Stocks Sold in Q3
Twenty-First Century Fox, Inc. (NASDAQ:FOX)
– Shares Sold During Q3: 28.63 million
– Value of Holding (as of September 30): $0
– Q4 Return (through December 14): +6.50%
– Trailing P/E Ratio: 18.55
– Forward Dividend Yield: 0.74%
Jeffrey Ubben stepped down from his role as a director on Twenty-First Century Fox, Inc. (NASDAQ:FOX)’s board back in April and began selling off ValueAct’s large stake in the company during that same quarter. In the third quarter ValueAct unloaded the rest of its position, selling out of the stock around its all-time highs.
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