Qualcomm, Inc (NASDAQ:QCOM) is in the news this morning as activist investor JANA Partners LLC appears to be pushing for change in the technology company. According to the Wall Street Journal, JANA is asking Qualcomm to spin off its “essentially worthless” chip unit from its patent-licensing business, which accounts for most of Qualcomm’s profit. JANA is also proposing that Qualcomm Inc (NASDAQ:QCOM) cut costs, speed up share buybacks, and reform its executive pay-structure and financial reporting, as well as make changes to its Board of Directors. Qualcomm (NASDAQ:QCOM) already announced a $15 billion share buyback last month, but JANA Partners said the tech company needs to do more to capitalize on its strong position in the chip market.
New York-based JANA Partners is one of the larger funds we track, with assets under management of $11 billion. The firm, located one block away from Central Park in Manhattan’s Midtown is run by Wharton-grad Barry Rosenstein, who founded the firm in 2001.
Following activist funds like JANA 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 holdings. A fund like JANA Partners can simply create their own catalysts by spending millions on an aggressive campaign. In recent years, the average returns of activists’ hedge funds have been much higher than the returns of an average hedge fund. 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. 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.
JANA Partners had a very volatile start to the new year, but Rosenstein’s top picks did end up doing very well by the end of the first quarter. As of its most recent 13F filing, the fund had 23 positions with market caps of $1 billion or more, and achieved weighted average returns of over 7.6% for the first quarter on those picks. Let’s look at some of them now.
Walgreens Boots Alliance Inc (NASDAQ:WBA) is probably the position JANA Partners is most known for right now. Last year the firm took an activist position, with Mr. Rosenstein gaining a seat on the board. Walgreens Boots Alliance Inc (NASDAQ:WBA) is the fund’s largest position in its 13F portfolio at 13.75 million shares valued at $1.05 billion representing almost 10% of its portfolio’s value. For the first quarter, Walgreens Boots Alliance Inc (NASDAQ:WBA) stock rose 11.5%.
eBay Inc (NASDAQ:EBAY) is another significant position in JANA Partner’s holdings. As of December 31, 2014, the firm held 13.45 million shares of eBay Inc (NASDAQ:EBAY) valued at $754.86 million, a 3% increase compared to the number of shares disclosed as being held at the end of the third quarter. eBay Inc (NASDAQ:EBAY) finally decided to split off its Paypal division last fall after lengthy efforts by fellow activist investor Carl Icahn. The stock steadily rose after news of the spinoff reached the market, and has hovered near its 52 week high of $61 for the past month. Shares of the e-commerce company gained 2.7% during the first quarter of 2015.
Hertz Global Holdings, Inc. (NYSE:HTZ) was another contributor to JANA Partner’s volatile start to 2015. Shares of the car rental company fell 13% over the first quarter after accounting issues came to light. Rosenstein has however claimed that the car rental company could buy back as much as 20% of its shares to boost its stock price. JANA Partner’s position in Hertz Global Holdings, Inc. (NYSE:HTZ) was increased by 218% during the fourth quarter. As of the end of 2014, the firm held 34.82 million shares at a valued at $868.42 million. Other notable investors associated with Hertz Global Holdings, Inc. (NYSE:HTZ) include billionaire Larry Robbins and Karthik Sarma’s SRS Investment Management. Click here for more on Rosenstein’s moves this past quarter.
Disclosure: None
