Nelson Peltz‘s Trian Partners recently filed its 13F with the SEC for the reporting period of June 30, revealing a U.S public equity portfolio worth over $9 billion. Mr. Peltz is one of the most renowned activist investors on the Street, having been in the news of late for his activist stake in companies like E I Du Pont De Nemours And Co (NYSE:DD) and Mondelez International Inc (NASDAQ:MDLZ). Trian Partners was launched by Peltz in 2005, along with his son-in-law Edward Garden and longtime business partner Peter W. May. The fund invests in stocks it deems undervalued, and according to its website, seeks to work constructively with the management of those companies to increase shareholders’ value. Being an activist investor, Mr. Peltz usually takes a significant position in the company he invests in, hence most of the time Trian Partners runs a highly concentrated portfolio by hedge fund standards. As revealed by the 13F filing, Trian Partners held positions in only ten stocks at the end of the second quarter and almost half of its equity portfolio was invested in stocks from the consumer staples sector. During the quarter, Trian Partners had a low turnover rate of 18.18%, with the fund reducing its stake in three stocks, initiating a position in one stock, and making additional purchases in two stocks, while selling off one stock (which we’ll discuss below). The stocks in which Trian Partners reduced its holding most significantly during the second quarter were: Allegion PLC (NYSE:ALLE), Legg Mason Inc (NYSE:LM), and Ingersoll-Rand PLC (NYSE:IR), and in this article we are going to dissect these stocks and try to understand why Mr. Peltz reduced his holdings in them (or in Allegion’s case, sold out of them completely).
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 Partners 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 because they don’t have to pay 2% of their assets and 20% of their gains every year to compensate hedge fund managers. We have found through extensive research that the top small-cap picks of hedge funds are also capable of generating high returns and built a system around this premise. In the 35 months since our small-cap strategy was launched it has returned 118% and beaten the S&P 500 ETF (SPY) by more than 60 percentage points (read more details).
Follow Nelson Peltz's Trian Partners
Trian Partners sold its entire stake of over 1.6 million shares in its eighth-largest holding from the end of the first quarter, Allegion PLC (NYSE:ALLE). Trian had initiated a stake in Allegion PLC (NYSE:ALLE) during the last quarter of 2013, after the company was spun off from Ingersoll-Rand PLC (NYSE:IR), another one of Peltz’s investments. Trian played a crucial role in that spin-off as a matter of fact, having communicated to the management of Ingersoll-Rand PLC (NYSE:IR) many times before that spinning off its security division would enhance shareholders’ value. Allegion PLC (NYSE:ALLE) reported its second quarter earnings on July 30, which came in above analysts’ consensus estimate. While the Street was expecting EPS of $0.70 on revenue of $514.18 million, the company reported EPS of $0.71 on revenue of $519.50 million. On July 23, the company announced that it has entered into an agreement through one of its subsidiaries to buy Netherlands-based residential and portable security provider AXA Stenman Holding. Apart from Trian Partners, John Griffin‘s Blue Ridge Capital also sold off Allegion PLC (NYSE:ALLE) shares during the second quarter, reducing its stake by 9% to 4.03 million shares.
