Five Big Equity Bets Behind JANA Partners’ First Annual Loss Since 2011

Since its inception in 2001, billionaire Barry Rosenstein‘s value-oriented, event-driven activist hedge fund JANA Partners has made a name for itself as one of the best performing fund in the history. However, like for many other hedge funds, the year 2015 didn’t turn out favorable for JANA Partners. According to Reuters, 2015 was the third year in the fund’s history when it lost money. Prior to this, JANA had posted a meager loss of 2.1% in 2011 and 23.6% in 2008 in the midst of the financial crisis. We looked at some of JANA’s largest holdings in companies whose stocks have slumped significantly last year, based on its 13F filings from the past several quarters. Particularly, five stocks had a significant negative impact on JANA’s returns and in this article we are going to discuss how each of them individually contributed to the fund’s poor performance.

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#5 Time Warner Inc (NYSE:TWX)

– Shares Owned by JANA Partners (as of September 30): 4 Million

– Value of Holding (as of September 30): $275.46 Million

Let’s start with Time Warner Inc (NYSE:TWX) in which JANA Partners initiated a stake during the first quarter of 2015 and subsequently increased it by 273% in the second quarter. Shares of Time Warner Inc (NYSE:TWX) fell off a cliff in August after the company reported its second-quarter results and ended the third quarter down by over 20%. Although JANA Partners reduced its stake in the company by 15% during that period, it wouldn’t have shielded it from the losses suffered by the stock. On December 10, analysts at Citigroup reiterated their ‘Buy’ rating on Time Warner’s stock, but lowered their price target to $83 from $95, which represents a potential upside of 28% from the stock’s current trading price. Billionaire Ken Griffin‘s Citadel Investment Group more than doubled its stake in the company to nearly 4.4 million shares during the third quarter.

#4 Hertz Global Holdings Inc (NYSE:HTZ)

– Shares Owned by JANA Partners (as of September 30): 39.2 Million

– Value of Holding (as of September 30): $655.67 Million

Car rental company Hertz Global Holdings Inc (NYSE:HTZ) lost almost 44% of its market capitalization in 2015 and that loss has definitely created a large impact on JANA Partners returns. The fund boosted its position by 217% heading into 2015 and consequently increased it by 20% and 1% during the first and second quarter of the year, respectively. However, it seems the continuous underperformance of the stock might have taken a toll on the fund’s conviction during the third quarter, forcing it to reduce the stake in Hertz Global Holdings Inc (NYSE:HTZ) by 7%. Hertz has been one of the favorite stocks among activist investors in the last few years, but that hasn’t been helping the stock much. JANA went activist on the company in 2014, when it sent a letter asking the company’s Board to replace the CEO, joining Carl Icahn, another activist investor. CEO Mark Frissora stepped down in September 2014, but the new CEO, John P. Tague, was not the candidate that JANA had suggested (Scott Thompson). On November 6, the company yet again disappointed the Street by reporting lower-than-expected EPS of $0.49 on revenue of $2.98 billion for the third quarter, following which its shares tumbled heavily. Carl Icahn‘s Icahn Capital LP has revealed in a filing recently that it has increased its stake in Hertz Global Holdings Inc to 14.3% from 11.34%.

#3 Computer Sciences Corporation (NYSE:CSC)

– Shares Owned by JANA Partners (as of September 30): 7.33 Million

– Value of Holding (as of September 30): $450 Million

Computer Sciences Corporation (NYSE:CSC) recently completed the spin-off of its U.S. public sector business as a separately-trading entity CSRA Inc (NYSE:CSRA) and paid a onetime special dividend of $10.50 per share to its shareholders. The company announced the spin-off in May, three months after JANA Partners revealed that it had built up an activist stake of 8.37 million shares of the company. Although JANA Partners reduced its stake in the company in the subsequent months to 7.3 million shares at the end of September, it was still the largest shareholder of the company among the funds covered by Insider Monkey at the end of December. Recently, analysts at Barclays have reduced their rating on the stock to ‘Equal Weight’ from ‘Overweight’ and also reduced their price target to $35 from $76. John Brennan‘s Sirios Capital Management increased its stake in the company by 50% to 905,713 shares during the July-September period.

#2 ConAgra Foods Inc (NYSE:CAG)

– Shares Owned by JANA Partners (as of September 30): 30.57 Million

– Value of Holding (as of September 30): $1.24 Billion

JANA Partners initiated a stake in ConAgra Foods Inc (NYSE:CAG) during the second quarter of 2015 and solidified it by raising it by 165% during the third quarter. The fund went activist on the stock immediately after initiating a position, asking the company to improve the performance of its private label food business. ConAgra Foods Inc (NYSE:CAG), on its part, didn’t put a fight and reached an agreement with JANA Partners in July by allowing two of the fund’s nominees to join its Board. However, all these changes didn’t translate into gains for ConAgra Foods’ stock, which has been drifting lower since the start of second-half of 2015. On December 22 the company reported its fiscal 2016 second quarter results, declaring EPS of $0.71 on revenue of $3.09 billion. For the same quarter last year it reported EPS of $0.61 on revenue of $4.15 billion. Robert Pohly‘s Samlyn Capital initiated a stake in ConAgra Foods during the third quarter of 2015 by acquiring 1.25 million shares of the company.

#1 QUALCOMM, Inc. (NASDAQ:QCOM)

– Shares Owned by JANA Partners (as of September 30): 28.55 Million

– Value of Holding (as of September 30): $1.53 Billion

JANA Partners’ biggest bet in 2015, QUALCOMM, Inc. (NASDAQ:QCOM), turned out to be one of its main loss-making investments for the year. While shares of QUALCOMM, Inc. (NASDAQ:QCOM) declined gradually throughout the year and ended 2015 down by over 30%,  JANA Partners held on to the massive stake of over 28 million shares of the company that it had initiated in the first quarter without making any significant changes in the first nine months of 2015. JANA Partners has been pressing QUALCOMM, Inc. (NASDAQ:QCOM)’s Board to split it into licensing and chip design companies. However, on December 15, QUALCOMM, Inc. (NASDAQ:QCOM)’s Board announced that it had rejected the idea of dividing the company. Following this announcement, analysts at JPMorgan Chase & Co. upgraded the stock to ‘Overweight’ from ‘Neutral’, but reduced their price target to $55 from $57.50. Ken Fisher‘s Fisher Asset Management reduced its stake in the company slightly (by 1%) to 9.38 million shares during the July-September period.

Disclosure: None