Nelson Peltz’s Trian Partners is embroiled in a vicious proxy fight with E. I. du Pont de Nemours and Company (NYSE:DD), which occupies the top spot in its equity portfolio. However, that hasn’t stopped the activist fund manager from delivering solid returns to his investors. Peltz’s 11 long positions beat the market during the first quarter, with their weighted average returns weighing in at 2.3%. The S&P 500 returned just 0.9% in the first quarter of the year.
Following activist funds like Trian Partners is important because it is a very specific and focused strategy in which the investor doesn’t have to wait for catalysts to realize gains in the holding. A fund like Trian can simply create its own catalysts by pushing for them through negotiations with the company’s management and directors. In recent years, the average returns of activists’ hedge funds has been much higher than the returns of an average hedge fund. Furthermore, we believe do-it-yourself investors have an advantage over activist hedge fund investors by simply piggybacking activist’s moves, as they don’t have to pay 2% of their assets and 20% of their gains every year to compensate activist hedge fund managers. Soon, we’ll be releasing a new quarterly newsletter written by former activist hedge fund analyst Michael Bland that tracks 10 or so activist campaigns at any given time.
Peltz’s top position is arguably his most contentious activist campaign ever, as he attempts to break up the 212-year-old chemicals giant E. I. du Pont de Nemours and Company (NYSE:DD). Peltz held a 24.31 million share position in DuPont, which was valued at $1.80 billion at the end of 2014. The position was increased by 250% during the fourth quarter, and has since been upped slightly to approximately 24.60 million shares according to Peltz’s latest filings. E. I. du Pont de Nemours and Company (NYSE:DD) shares were down by 2.74% during the quarter, which was beset by the warring actions of the two sides, though shares had achieved a 16-year high in the middle of March before a big drop to close the quarter.
Trian first nominated four director candidates in early January, stating at the time that the company’s management had not been held accountable for repeated missed earnings targets, while also urging for a split of the company. DuPont countered by adding two new directors to its board, neither of which were the ones put forward by Trian. In February, Trian released a 78-page report that went into detail about the under-performance of the company, while also filing a preliminary proxy statement to have its four director candidates, including Peltz himself, added to DuPont’s board. In early April, E. I. du Pont de Nemours and Company (NYSE:DD) countered with a presentation of its own, blasting Trian’s proposals and claiming a split of the company would cost it billions of dollars. DuPont also urged shareholders to vote against the candidates put forth by Trian, declaring them inexperienced and incapable of adding value to the company.
Some of the shareholders of E. I. du Pont de Nemours and Company (NYSE:DD) which may play a role in the upcoming proxy vote include Phill Gross and Robert Atchinson’s Adage Capital Management, and John A. Levin’s Levin Capital Strategies.
PepsiCo, Inc. (NYSE:PEP) had modest gains of 1.80% during the first quarter despite being one of the five stocks that hedge funds were yanking their capital from in droves during the fourth quarter. Peltz was not one of them, holding steady with his position of 17.87 million shares, unchanged from the previous quarter. It was valued at $1.69 billion at the end of 2014. PepsiCo, Inc. (NYSE:PEP), along with arch-rival The Coca-Cola Co (NYSE:KO), has struggled to counter declining sales as consumer tastes shift to healthier foods and drinks. One bright spot for both companies is the burgeoning business they are doing overseas, particularly in developing markets. However those sales were also negatively impacted by the strong U.S dollar, which has only strengthened further in 2015. Donald Yacktman’s Yacktman Asset Management is the largest PepsiCo, Inc. (NYSE:PEP) shareholder in our database, owning 26.98 million shares.
Trian has a large position of 46.30 million shares valued at $1.68 billion in Mondelez International Inc (NASDAQ:MDLZ), formerly the snacks division of Kraft Foods Group Inc (NASDAQ:KRFT). Peltz was a major shareholder of Kraft before that split, though he focused his efforts on Mondelez afterwards, missing out on the recent merger between Kraft and H.J. Heinz Company (NYSE:HNZ). Instead he built a large stake in Mondelez and pushed for them to merge with PepsiCo. He eventually gained a board seat at Mondelez International Inc (NASDAQ:MDLZ) in early 2014 and relented in his push for the sale of the company, instead turning his attention to improving its profit margins and expanding its market share. Billionaires Mason Hawkins and Lei Zhang were among the other investors with large positions in Mondelez International Inc (NASDAQ:MDLZ), which dipped 0.22% in the first quarter.
Peltz has been a major shareholder of Ingersoll-Rand plc (NYSE:IR) since early 2012, and has enjoyed strong returns from the capital goods stock, one of the most popular among the funds in our database, ever since. That continued in the first quarter with returns of 7.88%, pushing it to gains of nearly 125% since the beginning of 2012. Peltz lobbied for Ingersoll-Rand plc (NYSE:IR) to spin off its security business in 2012, which it eventually did, and also had a seat on the company’s board for a time before voluntarily giving it up due to other commitments. He remains the largest shareholder of Ingersoll-Rand plc (NYSE:IR) in our database with 12.82 million shares valued at $812.73 million, followed by fellow billionaires Daniel S. Och and Ken Griffin.
Wendys Co (NASDAQ:WEN) had a strong first quarter, rising by 21.25% and helping to push Peltz’s fund into the black amid the marginal performance of many of his top picks. Peltz has a position of 64.80 million shares of the fast-food chain, unchanged from the previous quarter, and valued at $585.15 million. Other shareholders began wisely opening positions in Wendys Co (NASDAQ:WEN) during the fourth quarter as fund ownership increased to 27 from 19, making it one of the most popular restaurant stocks. Among the new shareholders is billionaire Steve Cohen, while Murray Stahl’s Horizon Asset Management maintained a large position in Wendys Co (NASDAQ:WEN).
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