Billionaire Jeffrey Ubben is among the few activist investors today who, unlike more aggressive activists that pressurize companies to accept their demands, focuses on establishing a constructive dialogue with the management and board of directors and through that he seeks to bring about meaningful changes. His hedge fund, ValueAct Capital, uses a simple investment strategy of acquiring a significant stake in a handful of companies that it believes are undervalued. Then the fund tries to engage with their management to implement strategies that maximize returns for all shareholders. Our analysis of the fund’s 13F holdings in companies worth at least $1 billion reveals that the 15 long positions held by the fund delivered a weighted average return of 1% in 2015, compared to the nearly flat returns generated by the S&P 500 during the same period. Since the fund recently disclosed its equity portfolio in a 13F filing, in this post we will take a closer look at its largest equity holdings going into 2016 and see its top moves made during the fourth quarter.
At Insider Monkey, we track more than 700 hedge funds, whose 13F filings we analyze as part of our small-cap strategy. Our research has shown that imitating a portfolio that includes the 15 most popular small-cap stocks among hedge funds can outperform the market by as much as 95 basis points per month on average (see more details here).
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Let’s start with stock-index provider Msci Inc (NYSE:MSCI), in which ValueAct reduced its stake by 33% to 6.33 million shares, amid an over 20% rise in the company’s stock during the fourth quarter. At the end of December, this stake was worth $456.39 million and amassed 3.16% of the fund’s portfolio. Shares of Msci Inc (NYSE:MSCI) saw an unprecedented rise last year after the company conceded to ValueAct’s demand of appointing three new directors to its board in January, which included one of the fund’s partners, Robert Hale. Though the stock started 2016 on a weak note, it has recouped most of the losses and is now trading in the green owing to better-than-expected results the company reported for its fiscal fourth quarter. While analysts had expected EPS of $0.59 on revenue of $272.34 million, MSCI declared EPS of $0.66 on revenue of $272.90 million. Other hedge funds which reduced their stake in the company during the fourth quarter included James Parsons‘s Junto Capital Management, which trimmed its holding by 10% to nearly 600,000 shares.
Halliburton Company (NYSE:HAL) was another stock in which ValueAct reduced its stake significantly during the fourth quarter. The fund sold over 20.6 million shares, reducing its holding to 16.5 million shares worth $561.81 million as of December 31. ValueAct was betting on Halliburton Company (NYSE:HAL)’s merger with Baker Hughes Incorporated (NYSE:BHI) by acquiring a substantial stake in both companies. Hence, it is quite possible that by reducing its stake in Halliburton, the fund tried to reduce its overall exposure to the deal, considering that stocks of both companies have plummeted heavily in the last few months and the deal is facing a lot of regulatory hurdles. To reduce its capital expenditure further, Halliburton Company (NYSE:HAL) has announced that it would lay off 5,000 employees, which brings its total workforce reduction to around 27,000 since 2014 when headcounts peaked. Joe Dimenna’s Zweig Dimenna Partners boosted its stake in Halliburton Company by over 300% to 923,029 shares during the fourth quarter.
