Activist Jeffrey Ubben’s Picks Blow Away S&P 500 Index in Q1

Activist Jeffrey Ubben‘s 14 picks in companies with a market cap of $1 billion or more (his entire portfolio) delivered weighted average returns of 8.1% in the first quarter. These are very impressive results compared with the S&P 500 ETF (SPY) which came in at 0.9% for the same time frame. Ubben is CEO and CIO of ValueAct Capital, which he co-founded in the year 2000. The firm manages $14 billion and focuses on companies that have high-quality businesses and usually pursues representation on those companies’ boards. Over the last few years, ValueAct has had representatives appointed to the boards of 30 companies, including Microsoft Corporation (NASDAQ:MSFT) and Valeant Pharmaceuticals Intl Inc (NYSE:VRX) amongst others.

ValueAct’s strategy of focused activist investing has proven extremely successful, and forms some of the foundation for our own investing principles. ValueAct’s 13F positions returned an average of 1.29% per month between 2002 and 2012. The S&P 500 Index returned an average of 0.47% per month during the same period. All investors had to do was blindly imitate Ubben’s stock picks to outperform the market by 10 percentage points per year. This performance is even better than Warren Buffett‘s returns during the same period. But generally, imitating the moves made by billionaires and hedge funds does not guarantee great returns because most of their top picks are in large-cap stocks. These equities usually don’t beat the market by a large margin, as they are often more efficiently priced.  Hence, here at Insider Monkey, we concentrate our efforts on gathering and analyzing information regarding the small-cap picks of more than 700 hedge funds.

Our research has shown that the 15 most popular small-cap stocks among hedge funds beat the market by 95 basis points per month between 1999 and 2012. There aren’t a lot of investment strategies that can beat the market by 10 percentage points a year, so we launched our strategy and began tracking the performance of hedge fund’s 15 most popular small-cap picks since the end of August 2012. These stocks returned more than 137% since then through the end of March 2015 and dominated the S&P 500 ETF (SPY)’s 54% gain by more than 82 percentage points (read the details here).

Back to Microsoft Corporation (NASDAQ:MSFT), ValueAct first purchased shares of the software maker back in 2013. Microsoft Corporation (NASDAQ:MSFT) is the largest position in ValueAct’s 13F portfolio, as the fund disclosed holding 74.24 million shares at a value of $3.45 billion. This comprises 21.6% of the firm’s 13F portfolio. ValueAct believes Microsoft Corporation (NASDAQ:MSFT) is suffering from perception problems as a Windows/PC-cycle stock. Click here to see more of our recent coverage of Microsoft Corporation (NASDAQ:MSFT). Microsoft shares fell 12% during the first quarter.